Spain should cut debt and preserve labor reforms to resist economic shocks: IMF

MADRID (Reuters) – Spain should rein in its debt and deficit and maintain labor market reforms to resist future shocks as downside risks to the economy build, the International Monetary Fund (IMF) said on Wednesday.

The IMF trimmed its forecast for 2018 growth in the euro zone’s fourth-largest economy to 2.7 percent, in line with the Socialist government’s expectations, from the 2.8 percent forecast it made in April.

The Spanish economy is showing signs of flagging after 19 consecutive quarters of growth, but is still on track to remain among the fastest growing in Europe.

“At this juncture, it is critical to strengthen the economy’s resilience to withstand shocks,” the IMF said in the concluding statement of its 2018 report on Spain.

“Two policy areas are key for this goal: restarting structural fiscal adjustment and preserving the thrust of the labor market reforms” introduced by the previous conservative government, it added.

Debt levels have only come down marginally while the economy has grown strongly, making the government’s aim to cut the deficit to 1.8 percent of GDP for 2019 “critical and appropriate”, the IMF said.

It urged the government to preserve the thrust of the 2012 labor market reform, which included wage flexibility that “has underpinned Spain’s job-rich economic recovery and regained competitiveness”.

A sustainable and comprehensive pension package is also needed to address current tensions in the system, the IMF said.

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