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OECD improves Spain's GDP forecast but calls for pension reform

Warns that implementation of pension reform will be key to ensuring long-term fiscal sustainability

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OECD improves Spain's GDP forecast but calls for pension reform

The OECD has reviewed prospects for Spain's GDP growth this year and next, but launches a serious warning about reversing pension reform because it threatens its sustainability Long-term financial. In particular, Organization for Economic Cooperation and Development, club of large developed economies, increases growth figures of Spanish gross domestic product (GDP) to 2.8% in 2018 (five tenths more) and 2.4% in 2019 (three tenths more). It is thus placed on same line of IMF for this year and is even more optimistic than fund in 2019 — Christine Lagarde's body expects 2.2%.

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Spain, if forecasts are met, will grow above euro Zone average and more robust than most of world's major economies: in Germany it forecasts 2.1% in both 2018 and 2019; In France, 1.9%; And in Italy, 1.2%.

As a strong point, OECD emphasizes in Spain that economic consequences of political uncertainty around Catalonia have been contained, a good behaviour of private consumption, as well as flip of investment and exports. It also predicts a progressive reduction in unemployment: it should go from 17.2% in 2017 to 15.5% in 2018 and 13.8% in 2019.

Pensions, a key element

Among weak points, OECD points to burden of public debt. And it also points to a breach of Spain, for two tenths, of target of deficit marked by Brussels: It estimates that it will fall to 2.4% in 2018, compared to 3.1% of 2017. At this point, agency points to a problem for Spain: pensions.

For organization it is "key" application of pension reform, whose entry into force has been postponed with agreement that Government established with Basque Nationalist Party (PNV) to bring forward budgets of 2018. The OECD calls on government to adhere to its mid-term fiscal objectives and points out that " implementation of pension reform will be key to ensuring long-term fiscal sustainability."

Asked about this issue, in statements to EFE, chief economist of OECD, Álvaro Santos Pereira, stressed that if your financing is not viable in long term, "someone will have to pay bill", and if it is not with quotes, will be with taxes They'll amputate public spending in or games.

Little weight to political instability

In his chapter on Spain, OECD warns that "a minority government may have difficulty in moving forward with national reform programme." However, chief economist of organism, Santos Pereira, mitigated potential impact of Spanish political upheaval on economic "healthy growth" experienced by country. "We have seen in past that elections have not had a very big impact on Spanish economy and I think it will continue like this," he told Spanish media.

"We think that foundations of growth are investment, exports, and we think that this will continue independently of more or less political uncertainty, so we are quite positive," said. In fact, he said: If economic forecasts had been made this week "we would not have changed anything."

The or political factor that keeps OECD alert, like so many agencies, is Catalan crisis. In November, OECD already warned that "persistent tensions in Catalonia can reduce business and consumer confidence significantly, hampering domestic demand more than expected." Six months later, OECD considers that "so far, economic consequences of political uncertainty that exist in Catalonia have been contained". However, report adds, "persistent uncertainty in Catalonia could furr undermine confidence and strike domestic demand."

The recipes, already known

Among OECD's recommendations are few developments with respect to previous years and along same lines as or agencies. It highlights a number of labour market reforms, including reduction of duality between indefinite and temporary through better supervision of abuses of latter type of contracts, as well as implementation of more effective active employment policies.

The organization points out that country's tax structure is inclined towards labour taxes, reby penalizing growth and employment, recommending reducing exemptions and improving VAT management in order to increase efficiency of tax system, as well as Betting on environmental taxes that would strengn "green growth".

In addition, OECD believes that reducing barriers in services sector would contribute to growth of employment and productivity, a necessary condition for achieving sustainable development in medium term and a higher quality of life.

Global concern: The risks of a trade war

The world has finally come to an economic expansion as it has not seen since before crisis, according to OECD, which raised its forecasts for growth this year and next but drew attention to some risks, especially that of a possible trade war.

"The world economy is finally improving, it has taken us ten years to get to where we are today," said OECD secretary General Angel Gurría. "But not everyone is benefiting from this improvement. There are also significant risks, including a weakening of multilateralism, "he added in submitting report.

In its outlook report released today, OECD indicated that world's GDP progression will be 3.8% in 2018, which means one-tenth more than in its previous analysis six months ago. The upward revision is still greater for 2019, from three tenths to 3.9%, a rhythm which is explained in first place by tug-finally-of investment and world trade.

The bottom interest rates maintained by major central banks and fiscal stimulus have been big support, but return to normal in monetary policy requires that productivity gains be taken over. For that to happen, according to OECD chief economist Álvaro Pereira, pace of structural reforms has to be regained, which has been extinguished in recent years, precisely in heat of a recovery that seemed to make m less pressing. On side of risks, Pereira warns of commercial tensions, to which recipe is "to continue dialogue", because eventuality of a commercial war is something that "we do not want to experience".


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