This Week's Focus: IMF report

This Week's Focus: IMF report


IMF report
In its recent World Economic Outlook published last week, the International Monetary Fund (IMF) finds that the global economy is growing below its pre-2008 financial crisis potential.

Stresses that in the advanced economies, among which is the Spanish, the reduction in potential economic growth due to demographic factors and the subsequent slowdown in growth meant exceptional period the years before the crisis by innovations in technology information.

It adds that the reduction in potential economic growth implies more difficulty sustaining public finances, generating chronic deficits that would aggravate the problem of public debt.

In addition, the monetary policies of zero interest, as currently applied by the ECB, involving the scope for action of this front in economic policy before the emergence of any new threat to economic growth.

Spain is it different?
The Spanish case is a clear example of what it says the IMF in its report. While the Spanish economy is in a phase of economic expansion, as shown in the evolution of the growth rate of GDP, the current growth (around 2%) it is lower than the rates recorded before the financial crisis (between 3% and 4% annually).

Compared to the Euro zone, the Spanish economy has suffered more in the two episodes of recent crises (financial crisis of 2008 and 2011 euro), registering greatest falls in their rate of growth in both periods.

The lost decade
Spain also suffers from an effect that is rarely discussed, and that is the stagnation of GDP, even with the recovery observed since the second quarter of 2013. This effect, assumes that the current GDP is at levels below the 2007, so the growth path that recorded the Spanish economy until the first half of this century has been lost.

In particular to regain lost economic growth experienced between 2008 and 2014, representing 25% in terms of lost growth, should increase the pace of GDP growth to 7% by 2020. It is the rate at which China's economy grows, an impossible challenge now for the Spanish economy.

Growth forecasts for the Spanish economy are around 2.7% for 2015 and 2.5% for 2016.

These figures, although they are positive for the coming context of the economy, are far from desirable for its effects to be fully felt in a marked improvement of the ills affecting the Spanish economy today, especially unemployment .

Unemployment and aging, two huge challenges
High unemployment, coupled with an aging population, has a special impact on household consumption. Private consumption is one of the engines of growth of GDP and its evolution often conditions for private investment, another cornerstone in the growth in developed economies supported.

Unemployment in Spain has been a slight improvement recently, but continues to record incompatible with economic growth rates, with more than 23% of the workforce unemployed.

According to INE, Spain lost 2.6 million inhabitants by 2023 compared to the population of 2013, standing at just over 44 million in that year, from nearly 47 million people in 2013. Migration will also be also negative with nearly half a million immigrants a year and more than half of immigrants.

Both factors, together with a declining birth rate despite a slight increase in the number of children per woman, because of the smaller number of women of childbearing age, condition the future mid-term unemployment and economic growth.

Innovation, our hope
The response to these challenges can only come from a transformation of the structure of the Spanish economy through job creation in sectors with higher added value. Thus, a future crisis will have minor effects on destruction of GDP and employment, and more vigorous recoveries.

The problem is that the economic structure of a country can not alter overnight, it takes time and involvement of all economic agents. To make it possible, private investment has to grow much larger way than it has done, creating industries that require better educated people and they can compete better, contributing to economic growth via exports. Our external sector is exhausting their capacity to contribute to GDP as it is configured today.

Innovation, productivity, investment, all this is repeated in the IMF report also emphasizes the need for reform of the economic structure elements. Innovation and development allow you to create greater value in producing goods and services, higher GDP. So they can create companies and innovative industries and value, we must have people with qualified training, so it is necessary to properly train them and create jobs that could be filled by those people. It is useless to invest in education and then export the raw talent, without turning it into activity the return in the country.

In Spain, every other day you are also advised to continue promoting structural reforms. Not one, not electioneering, but necessary, policy matter of survival.