“The challenges are severe: a dysfunctional labour market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness,” the IMF, led by managing director Dominique Strauss-Kahn, said in a report. “This needs to be complemented with growth-enhancing structural reforms, building on the progress made on product markets and the housing sector, especially overhauling the labour market,” it said.
After a weak and fragile recovery the economy would grow by 1.5-2 per cent in the medium term, it said.
“Our central scenario is one of continued adjustment of the various imbalances with growth rising gradually to 1.5-2 per cent in the medium term,” the report said.
The report was released as Spain struggles to cut a large budget deficit and convince investors it will not face a Greek-style debt crisis.