MADRID, June 13 Spain's economic recovery is
continuing, boosted by expansive euro zone monetary policy and
domestic structural reforms, though challenges remain, the head
of the Bank of Spain said on Friday.
Spain's economy has been in or near recession since a
decade-long property bubble burst in 2008, though it expanded at
its fastest quarterly pace between January to March in six
years, raising hopes it had turned a corner.
"Activity was progressively dynamic through 2013 leading to
growth as of the third quarter. Most recent data indicate a
strengthening of this trajectory so far in 2014," Bank of Spain
Governor Luis Linde wrote in an introduction to the bank's 2013
The government has passed a slew of structural reforms and
austerity measures aimed at boosting competitiveness, cutting
one of the euro zone's highest budget deficits and creating
However, unemployment remains the second highest in Europe,
at 25.9 percent and the deficit is not set to drop to the
European Commission's recommended 3 percent until 2016.
"Despite the advances in nursing the Spanish economy back to
health, the recovery's consolidation is faced with great
challenges due to the depth of the crisis," Linde said.
"Economic policy must lead to additional improvements to
competitiveness and the reassignment of resources to sectors
with the greatest growth potential at the same time as reducing
debt in the public and private sector."
While admitting that the margin for expansive policy was
limited, Linde said he hoped the government's fiscal reform, due
before the end of the year, will help fix public revenue which
has dropped to one of the lowest amongst developed economies.
The government, faced with a national election next year and
an electorate tired of years of tax hikes and spending cuts, has
said it will reduce income and corporate taxes as part of the
reform to help feed the recovery.
European Central Bank monetary policy, which has cut
interest rates to record lows, has helped support structural
reforms and the euro area's lenders are in a better position to
lend in to the recovery, Linde said.
Long-term inflationary expectations remain in line with the
ECB's price target of near 2 percent, but persistently low
inflation rates over an extended period are a risk to the
recovery's sustainability, he said.
Spanish national consumer prices rose 0.2 percent
year-on-year in May according to data from the National
Statistics Institute on Friday, compared to 0.4 percent in April
and a Reuters poll forecast of 0.2 percent.
(Reporting by Paul Day)