OECD forecasts growth for Spain next year

| December 20, 2010
OECD forecasts growth for Spain next year

Spain has featured heavily in the news recently after speculation mounts that the country will need to seek an emergency bailout from the EU.

However, the country’s Government continues to deny the claims.

Earlier this month, Spain’s finance minister, Elena Salgado, said: “Our fiscal adjustment is on track… we have done all the things that we had to do with our financial sector.”

She added that Spain is “absolutely not” seeking a rescue.

Investors are nervous after fears that some of the euro zone’s weaker economies may need financial aid after borrowing costs have been soaring to dangerous levels.

Last week, credit ratings agency Moody’s warned it may downgrade Spain’s sovereign debt rating from Aa1.

While the country is gradually emerging from its worst recession in decades, the Organisation for Economic Co-operation and Development (OECD) has said while Spain is making progress in its recovery, it needs to reduce spending further and must reform its labour legislation and employment practices.

The Organisation also called for pension reform and for the retirement age to be lifted and suggested introducing restrictions on subsidies to early retirement.

However, today, Labour Minister, Valeriano Gomez, outlined details of the pension reform, which includes lifting the retirement age from 65 to 67.

On a positive note, the OECD said Spain should return to growth next year and is forecasting growth of 0.9% in 2011 and 1.8% in 2012.

Meanwhile, the OECD expects unemployment to fall to 19.1% in 2011 and to 17.4% in 2012.

Spain currently has the highest unemployment rate in the EU - at almost 20% - double the 10% for the euro zone as a whole.

The economy has been hit by a severe slump within its key construction industry, which has led to a significant amount of job losses.

Growth in the economy, which is Europe’s fifth-biggest, declined for seven consecutive quarters after entering recession the second-half of 2008 – due to the collapse of the property market.

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