The International Monetary Fund is warning that Spain risks high joblessness and sluggish growth for years unless its takes “urgent action”.
In its annual assessment of the Spanish economy, the IMF does praise the Madrid government for reforms that have stabilised the economy, but warns it, and the European authorities, need to boost job creation in the country.
It wants further labour law reforms to make it easier for companies to modify work rather than dismiss employees, reduced severance pay and changes to collective bargaining.
The IMF’s mission chief James Daniel said: “The jobs crisis calls for a mechanism to bring forward the gains of structural reforms. That is why we suggest a mechanism, some form of agreement between employers and labour to accelerate hiring and accelerate wage adjustment.”
Ranjit Teja of the IMF’s European Department added that would increase hiring: “In our view, nothing helps raise demand like a man or a woman with a job and an income. So that’s why the focus on wage adjustment, on labour market reform is precisely to produce aggregate demand, that will create people with incomes. Right now you’re losing aggregate demand because people don’t have a job.”
The IMF said Spain could return to growth later this year, but warned the country’s banks faced a worsening problem of loans not being repaid due to the difficult economic outlook.
It believes the government should encourage banks to quickly sell their distressed assets such as the land and buildings left over from the bursting of the property bubble.
Spanish banks’ bad loans as a percentage of total credit rose to 10.9 percent in April from 10.5 percent in March, the Bank of Spain said this week.