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The IMF warns of the risk of the Spanish economy because of its high need for funding

Global imbalances can lead to disruptive change in emerging countries, according to the fund

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The IMF warns of the risk of the Spanish economy because of its high need for funding

Spain receives much more foreign investment than it sends out of its borders. This is no novelty, and in recent years economy has managed to reduce this mismatch: Net international investment position (PII) has gone from 94% of GDP in that it was in 2009 to 81% of last year. Despite this improvement, International Monetary Fund (IMF) warns of risks that this imbalance entails for Spanish economy.

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Among "external vulnerabilities" mentioned by agency led by Christine Lagarde are " large gross foreign-debt financing needs" and "potentially adverse" effects of a devaluation of its foreign assets. In its report on external sector of July 2018, Fund also mentions two factors that mitigate se risks: favorable deadlines for maturity of external debt – with an average of seven years – and lax monetary policy of ECB, which reduces cost of SURPL A. The IMF forgets to mention in its report that Eurobanco is preparing to withdraw its extraordinary liquidity measures in a very gradual manner.

Not everything is bad news for Spanish economy. In its report addressing global imbalances amid increasing trade tensions, IMF also highlights how current-account deficit that swept Spanish economy has been yourself on track. After reaching in 2007 a peak of 9.6% of GDP of this indicator that measures excess of goods, services, rents and transfers that a country buys abroad compared to those that buy it, it was spent a decade later to a surplus of 1.9%. This twist of Spanish foreign sector is mainly due to sharp drop in imports that followed first unseen of crisis in 2008. Since n, imports and exports have been increasing in hands of economic recovery.

This surplus, assures fund, is explained by a "robust" domestic demand, low interest rates and increased competitiveness gained through wage restraint policies. "Spain achieved its fifth year of current account surplus, something unusual in its recent history," fund says.

The IMF attributes this improvement to competitiveness gains of Spanish economy thanks to policies of wage moderation and to a greater effort by external sector in national companies, which led to an increase in weight of Spain as a power Exporter in world. "Current-account surpluses are expected to continue in medium term despite recent euro appreciation and oil price increases," report continues.

Beyond Spain, fund draws a panorama of world not very different from last few years: large areas with surpluses in European countries such as Germany and Holland or or in Korea, Singapore and China; and concentrated deficits in US, United Kingdom, and or eurozone debtor countries. The fund warns that global imbalances along with policies to reduce se imbalances pose a risk to economic stability.

The tightening of monetary policy in US, strongest dollar, and worsening of its current-account deficit can, in medium term, lead to "disruptive change for emerging economies," IMF says.

Maurice Obstfeld, chief economist at IMF, explained on Tuesday at a press conference that foreign-sector imbalances "remain relatively unchanged" in general terms and noted that in 40% of countries analyzed are considered "excessive." They are concentrated mainly in advanced economies. "It is not an imminent threat," Obstfeld said, "but y can threaten global economic stability in future."

The IMF believes that surplus and deficit by mselves are not problematic. "But if external imbalances become excessive," Obstfeld said, "They are a risk to economies because y make m vulnerable and can have a destabilizing effect to global effect." He also pointed out that countries with excessive surpluses "are an easier target for protectionist measures". The objective of report, he insisted, is "to warn of potential risks".

The IMF analyses each year wher surpluses and external deficits are appropriate or excessive. The study focuses on balance-of-payments, exchange rates, capital flows, international reserves and real exchanges. The intention is to provide a perspective on imbalances that create policies in world's 29 largest economies, in addition to eurozone.

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