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The IMF provided another indication this week that economic fallout from Spain's almost-constant political instability continues to be fairly limited. In its twice-yearly World Economic Outlook report, the Washington-based fund predicts that Spain will be the third-fastest-growing of the world's most advanced economies throughout the rest of this year and 2025, just behind those of the US and Canada. This comes on top of its revised 2024 forecast for Spanish GDP, which it increased last week from 1.5% to 1.9%. The fund's projection now mirrors the Bank of Spain's, which was upped from 1.6% last month.
Currently headed by Bulgarian economist Kristalina Georgieva, the IMF changes its fiscal predictions so often - a slight increase here, a tiny decrease there - that they have limited practical value, and are usually only of interest to economists, politicians and journalists. But the issues that the fund cites as stimulants and obstacles to economic growth, both domestically and internationally, are often much more interesting than the actual statistics.
The conflicts in Gaza and Ukraine were named by the IMF as the major threats to the world economy this year and next. But it had surprisingly little to say about the controversy over Pedro Sánchez's amnesty deal with Catalan separatists, or the ineffectiveness of the government he now leads, as evidenced by its inability to pass a budget for 2024. Perhaps that's because Spain's economy isn't usually particularly affected by the political instability that has become the norm since 2015. We've been reminded of this many times since that year's general election, especially throughout the long periods when the country has had no government at all. During every one of these, Spain's economy has performed well.
Similarly, two of the factors fuelling GDP expansion in Spain over the next couple of years will be largely beyond the central government's control. These are a slowdown of worldwide inflation and increased domestic consumption, even though the latter has only just returned to pre-pandemic levels. But what are we to make of a third factor that the IMF says will fuel the country's top-tier economic performance until 2026 - namely the EU's 'Next Generation' Covid recovery funds?
Concerned that the Next Gen grants were not being deployed effectively in Spain, the EU asked Sánchez last February for hard details: how much had already been spent and on what? But Brussels is still in the dark, because the Socialist-led coalition failed to provide that information. The EU's concerns have recently been intensified by the Koldo scandal, which centres on allegedly corrupt practices by an advisor to a former member of Sánchez's cabinet. Despite the IMF's optimism, it looks as if possible corruption, mismanagement and the deadening effects of bureaucracy will prevent the Next Gen funds enhancing Spain's GDP performance over the next two years.
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