The International Monetary Fund (IMF) on Friday in its annual report on the Spanish economy warned that the economic outlook for the crisis-hit eurozone member-nation "remains very difficult and vulnerable to significant downside risks."
The international lender said it expects Spain's economic contraction to deepen further and continue for longer than previously anticipated. The IMF predicts the Spanish economy will shrink by 1.7% this year and by 1.2% in 2013, before growing by 0.9% in 2014.
Last week, the Spanish government cut its economic forecast and predicted that the recession would extend into next year, and said it now expects the economy to shrink 0.5 percent in 2013.
Also, figures released earlier on Friday by the statistical office INE showed that unemployment rate in Spain climbed to a new record high in the second quarter of 2012 as recession and stringent austerity measures forced firms to shed more jobs.
The data indicate Spain's unemployment rate rose to 24.63% in the second quarter from 24.44% in the first quarter, implying that unemployment has now risen for four consecutive quarters in the country.
In its report, the IMF emphasized on the urgent need to reduce unemployment, and "underlined the urgency of additional progress in boosting competitiveness and jobs, given the high level of unemployment, in particular among the youth."
The lender also noted that continued investor concerns over Spain's economy would adversely affect the ability of eurozone's fourth largest economy to raise funds from the financial markets, notwithstanding the recent eurozone bailout agreed for Spanish banks as well as the financial reforms being planned for the 17-nation eurozone.
"Market tensions could intensify further, threatening market access, particularly if policies fail to stem capital outflows or due to further stress elsewhere in the euro area," the report said, warning that urgent measures to cut debt and push financial reform were "critical."
Nevertheless, the IMF praised the austerity measures being implemented by the Spanish government for containing its financial problems, saying: "Imbalances are improving, especially the current account deficit, inflation and unit labor costs."
Although the report welcomed the Spanish government's "decisive action on many fronts" to contain the crisis, the note stressed on the need for more "sustained efforts and a clear, credible medium-term strategy for fiscal consolidation, financial sector restructuring, and structural reforms."
Although, Spain's borrowing costs earlier this week jumped above 7%, a level seen as unsustainable by economists, they fell below the critical level on Friday after Germany and France made a pledge to do everything they can to protect the eurozone from collapsing.
Earlier, ECB President Mario Draghi had declared at an investment conference in London on Thursday that the central bank is prepared to do whatever it takes to preserve the euro and act on rising bond yields. Draghi's remarks, coupled with the Franco-German joint statement, has raised hopes of more EU action to ease the ongoing debt crisis in the eurozone.
Incidentally, Spain had not seen any respite from surging borrowing costs even after eurozone finance ministers formally approved the 100 billion euro bailout package for its banking system last Friday. The small relief after Prime Minister Mariano Rajoy unveiled a EUR 65 billion austerity package on July 11 proved to be short-lived.
Incidentally, the developments come amidst concerns that Spain may be forced to seek an international bailout for its entire economy. There have been unconfirmed reports that Spanish Economy Minister Luis de Guindos discussed a 300 billion euro bailout with German Finance Minister Wolfgang Schaeuble when they met earlier this week.
Spain, however, dismissed reports of its seeking a bailout loan from the European Union, with government spokeswoman Soraya Saenz de Santamaria saying: "There is not going to be a bailout and a bailout is not an option."
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Political News
June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.