The International Monetary Fund on Wednesday urged Spain and Europe to take urgent steps to generate growth and jobs as the outlook remained tough.
Spain's unemployment level is "unacceptably high" and the outlook remained difficult. "This calls for urgent action to generate growth and jobs, both by Spain and Europe," the lender said in a regular review report.
However, the IMF applauded Spanish authorities for the "strong progress" made on critical and difficult reforms. It noted that key imbalances are correcting rapidly and sovereign spreads have fallen sharply as a result of the reforms.
"While there are signs the economic contraction may end soon, the outlook remains difficult," IMF said in the report. The Fund expects growth to start to turn positive later this year and to gradually pick up to around one percent in the medium term, but with limited gains in employment.
The economy has contracted for seven consecutive quarters and the unemployment rate has reached a record 27 percent, largely as a result of private sector deleveraging and fiscal consolidation, the reported noted.
Going forward, "private sector deleveraging could weigh more heavily on growth or financial market pressures intensify," the report said.
It also pointed out that more efforts are needed at the European level to ease Spain's adjustment. "Of particular importance to Spain would be moving faster to full banking union, which would help break the sovereign/bank loop by allowing Spanish firms to compete for funds on their own merits rather than on their country of residence," the report said.
IMF said further ECB measures to reduce the much higher borrowing costs facing Spain's private sector would also be important. "Spain and the euro-area should keep the option of an OMT-eligible program open to help cement market confidence and lower yields," it added.
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