IMF lowers 2011 Spain growth forecast to 0.6 percent

30th July 2010, Comments 0 comments

The IMF on Friday lowered its 2011 growth forecast for the Spanish economy to 0.6 percent from the 0.9 percent it foresaw in April and warned the recovery "is likely to be weak and fragile."

"The particular challenges facing Spain will likely make the recovery slower and more fragile than in the euro area," it said in its latest report on the the country's economy.

The International Monetary Fund's growth forecast for Europe's fifth-largest economy for next year was lower than the 1.3 percent expansion predicted by the Spanish government, which is under pressure to close its public deficit.

The IMF listed a deflating property bubble, a "dysfunctional" labor market, heavy private sector indebtedness, weak competitiveness, "anemic" productivity growth and a "banking sector with pockets of weakness" as the challenges faced by the Spanish economy.

"Not only does each factor pose a challenge by itself, but, together, they may create a vicious cycle of negative feedback," the IMF said in the report.

"The central scenario is one of a long and gradual adjustment of the various imbalances in the economy."

Spain scraped out of recession during the first quarter when it expanded by 0.1 percent from the previous quarter and the government expects it will expand by 0.3 percent this year.

The IMF predicts the Spanish economy will contract by 0.4 percent this year. It forecasts growth of 1.7 percent in 2012 and of 1.9 percent in both 2013 and 2014 and of 1.8 percent in 2015.

Spain was the last major world economy to emerge from recession and concern over its weak growth prospects has fueled market worries that it may struggle to rein in a public deficit that shot up to 11.2 percent of GDP last year, the third highest level in the eurozone after Greece and Ireland.

The country entered its worst recession in decades during the second half of 2008 as the global financial meltdown compounded a crisis in the Spanish property market, which had been a major driver for growth in previous years.

© 2010 AFP

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