- The growth projection for 2017 rises two tenths, to 2.5%, and the unemployment rate falls to 17.5%
- The reduction of the public deficit since 2012 has been considerable, but the objectives to reduce the debt must be met
- The tax and transfer system reduces inequality and poverty, although more support must be given to families with children
- The financial reform helped stabilize the sector and increased credit and currently does not raise solvency questions
The Organization for Economic Cooperation and Development (OECD) considers that the recovery of the Spanish economy is solid, thanks to the set of structural reforms adopted by the Government. This is reflected in the report Economic Review-2017 Spain presented today in Madrid by the Secretary General of the OECD, Ángel Gurría, and the Minister of Economy, Industry and Competitiveness, Luis de Guindos. The OECD forecasts for Spain improve for 2017 compared to last fall. The economy will grow 2.5% (two tenths more) and the unemployment rate will drop to 17.5% (two tenths less), in line with the government's forecasts.
The OECD considers that the Spanish recovery is one of the most solid due to the wide range of structural reforms carried out, the consolidation of the financial system and fiscal policy. It points to other growth drivers common to other countries, such as expansionary monetary policy, low oil prices and the depreciation of the euro. The internal risk for Spain centers on the difficulty of continuing the reforms, since the Government does not have a sufficient majority. From abroad, uncertainties would come from possible turmoil in financial markets, the slowdown in world growth, trade wars, a disorderly Brexit and a deterioration of the European banking system.
In this sense, the OECD stresses that the Spanish banking system comfortably complies with the solvency regulatory requirements. It acknowledges that the banking reform helped stabilize the financial sector and contributed to an increase in credit thanks to the improved access of institutions to markets. The sector is now significantly stronger, the report underlines. Beyond the measures adopted to restore the financial stability of the entities, the regulation and supervision of the sector has been reinforced.
Regarding fiscal policy, the OECD considers that Spain has made a considerable effort to reduce the public deficit since 2012 and insists on the need to meet the objectives to reduce the high level of public debt. In addition to a new public administration reform program, the organization considers that the reforms of the pension system already adopted have reduced the risks of sustainability of the system, but believes that additional measures are necessary. Regarding the tax system, the OECD supports recent measures regarding excise duties and recommends monitoring the impact on large companies of the recent corporate tax reform.
Regarding the labor market, the OECD points to the increase in inequality in the distribution of income and the poverty rate during the crisis as a consequence, above all, of high unemployment. It indicates that the poverty rate decreased in 2014 and predicts that the trend will continue, as a result of the improvement in labor market conditions. It considers that the Spanish tax and transfer system contributes to reducing poverty and inequality, although it calls for greater support for families with children. In this sense, the OECD proposes to strengthen social support systems and active employment policies with the idea of achieving the objectives, spending more efficiently and increasing their digitization.
It values in a very positive way the results of the labor reform of 2012 and underlines that it has contributed to slow down the destruction of employment from 2013 and to improve the probability that temporary contracts, especially for young people, will become permanent. However, temporary employment remains high, there are deficiencies in training and a higher percentage than the EU measure of low-paid jobs. In this regard, it considers it necessary to improve vocational training, especially dual training, and to seek greater convergence between temporary and fixed dismissal costs.
The OECD points out a series of reforms that it considers necessary to guarantee sustainable economic growth in the medium term. Regulatory barriers that restrict competition must be reduced (continue implementation of the Market Unity Law and liberalization of professional services). Also, seek greater efficiency in the bankruptcy regime, whose operation has improved with the reforms of 2014 and 2015, but which could be completed with measures such as reducing the five-year term for exoneration of debts for operationally viable, but indebted companies. Finally, the OECD considers that the innovation support system needs to be improved.
