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IMF: Spanish slump to end soon

June 19, 2013

Spain may to return to the path of economic growth in 2013, ending almost half a decade of recession, the International Monetary Fund (IMF) has said. As reforms are taking hold, the road to recovery will remain tough.

Image: Reuters

Growth in Spain is expected to return later this year as measures such as a labor market reform and a bank clean-up have helped to stabilize the economy, the International Monetary Fund (IMF) said Wednesday.

Following annual consultations with the government in Madrid, the IMF said in a statement that austerity measures were still required, but needed to be as gradual and growth friendly as possible.

Spanish Prime Minister Mariano Rajoy has drastically reduced government spending in an attempt to reduce the budget deficit from 7 percent of gross domestic product in 2012 to below the EU limit of 3 percent by 2016.

As a result, Spanish borrowing costs have fallen while exports are rebounding and lower labor costs have improved business competitiveness.

However, the IMF also expressed concern over the country's rampant unemployment, currently standing at 27 percent, which would make the economic outlook remaining difficult.

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The global lender of last resort recommended several job creation strategies, including tools for companies to change work arrangements rather than dismissing employees. In addition, the huge divide between temporary workers and regular workforces must be reduced, as well as the costs of hiring young and lower-skilled workers.

The IMF was also critical of recent eurozone measures to shore up the Spanish banking sector, which have led to a sharp contraction of credit and higher lending rates than in most eurozone countries.

Spanish banks have received more than 40 billion euros ($53 billion) in emergency funding from the European Union to help ailing banks, which are sitting on huge amounts of bad debt in the wake of a collapse of the real estate market in 2008.

Therefore, the IMF advised Spain to boost insolvency programs and encourage banks to sell their distressed assets.

uhe/dr (AFP, AP, dpa)

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