Spain's GDP was projected to shrink 1% in 2009, the IMF said Wednesday. Deleveraging in the private sector was in full swing, with households cutting down on consumption, while firms were reluctant to invest, according to the IMF. Business confidence would improve if the government developed a comprehensive forward-looking strategy, linked to fiscal measures and structural reforms, the IMF observed.
In an indication of a slowdown in the construction sector, there were fewer applications for new building permits while new housing starts were decreasing. The government could help by limiting the inventory of vacant homes, while undertaking measures to activate the rental market.
The IMF lavished praise on Spain's management of its banking sector. Banking assistance policies were market based with appropriate exit strategies, the IMF opined. Counter cyclical provisioning and rigorous treatment of off-balance sheet vehicles had placed the sector on a sound footing when compared to many other countries. Banks also had virtually no toxic assets on their balance sheets. Though non-performing loans had increased, robust provision buffers enabled Spanish banks to maintain adequate capital ratios and continue to remain profitable.
The government had also taken prompt steps to deal with the credit crisis in tandem with EU partners. Deposit insurance had been hiked to EUR 100,000 from EUR 20,000, while fiscal authorities had created a EUR 30-50 billion liquidity fund to help banks meet their funding needs. The authorities also provided government guarantees for new bank debt up to EUR 100 billion, which will be available through mid 2009. Further, in anticipation of a long drawn out downturn the authorities had established legal provisions to support banks with capital assistance.
In addition, the government had also taken fiscal measures to the extent of 4% of GDP to boost investment in labor-intensive local public works. However, short term measures had to be embedded in a long run context to derive maximum benefits, the IMF observed. Further, structural reforms including labor market reforms were needed to sustain the growth momentum over the medium-term, IMF pointed out.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.