Concerns over Spain’s economy grow

The
International Monetary Fund (IMF) has raised fresh concerns about Spain’s
economy, saying “far-reaching” reforms are needed to ensure its recovery.

It
said the country faced “severe” challenges, including the need to
urgently reform a “dysfunctional” labour market, and its banking
sector.

The
IMF’s comments came after Spanish authorities had to rescue regional lender
Cajasur at the weekend.

Last
week, Spain’s government passed austerity measures to cut its deficit.

This
deficit – the money the administration has to borrow to pay for public services
due to insufficient tax returns and other revenues – currently equates to 11
per cent of Spain’s economic output.

This
is substantially higher than the eurozone ceiling of 3 per cent and another
concern that the IMF has highlighted.

It
also pointed to Spain’s property market slump, heavy indebtedness in the
private sector, and weak productivity and competitiveness.

“It
is not the first time that the IMF has said Spain needs economic reform, but
the language has a much greater sense of urgency,” said BBC economics
correspondent Andrew Walker.

“The
IMF says bluntly, the Spanish labour market is not working and needs reform of
pay bargaining and lower payments for fired workers.”

Last
week, the Spanish government approved a 15 billion euro austerity plan,
including a 5 per cent cut to public sector salaries, as it aims to reduce its
deficit.

Spain
also has to cope with unemployment of more than 20 per cent.

Concerns
about the Spanish economy have to be seen in the light of the recent financial
crisis in Greece, which has a deficit amounting to 13.6 per cent of GDP.

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