IMF pessimistic about Spanish economy

A year ago Spain was the subject of many anxious conversations at IMF meetings. Fortunately, we are no longer the center of attention, but we still have not fixed the old problems that were causing monetary officials to fret. Worse, the IMF says the problems have worsened. It expects slowing growth to spread from peripheral Europe to the central countries. France cannot avoid a recession this year, and growth in Germany will flag by 0.6%. IMF director Christine Lagarde thinks that Europe has lost its economic prowess in the global arena and is now fourth compared to emerging markets like China and Brazil, the perennial powerhouse the United States, and Japan.

Despite Japan's long period of stagnation, it is starting to make decisions that boost growth. The view for Spain is distressing. With negative 1.6% GDP growth expected for this year, the government will not be able to meet its deficit objective for 2013 or 2014. Its debt-to-GDP ratio will surpass 100% in 2018. The government knows the gravity of the situation. Accordingly, Rajoy has changed his approach with the EU and Luis de Guindos is waiting on Lagarde to grant Spain some much-needed financial aid so that the European Commission will start issuing growth predictions.

But aid from outside Spain will not help if inside the country nobody commits to reform programs. Spain has let another year slip by without fixing its issues. Cristóbal Montoro has decided to raise taxes, but has not committed to fiscal or public sector reforms that are critical for balancing the budget. Regional governments have yet to curtail their spending as they go on like the crisis never happened. These are some reasons that the IMF issued a gloomy forecast.