OECD asks Spain maintain consolidating recovery stimulus but focus them on specific sectors and evaluate the impact of the increase in the minimum wage on vulnerable jobs.

The coronavirus has caused an unprecedented recession in Spain, the Government's response has slowed its impact, but to reinforce the recovery it is necessary to boost employment and digitalization and contain medium-term fiscal challenges by focusing stimulus measures on specific sectors.

These are the main conclusions of the Economic Study of Spain 2021 report that has just been published by the Organisation for Economic Cooperation and Development (OECD), in which it analyzes the impact of the pandemic on the Spanish economy and offers recommendations to mitigate its effects, promote an inclusive and sustainable recovery, address medium-term fiscal challenges and promote digitalisation and the advancement of productivity.

The study points out that the coronavirus has caused an unprecedented recession, although it states that "the economic policies gave a timely response to the crisis and the recovery will be gradual, starting from the second half of 2021," noting that the collapse of the GDP for 2020 reveals the effect of measures to curb the pandemic, and also the structural weaknesses of the Spanish economy, such as the dependence of tourism, the prevalence of smes and the high temporary employment.

"Public support measures, equivalent to approximately 20% of the GDP (including guarantees and indirect measures), mitigated the negative impact of the crisis," notes the report, which estimates that, despite the uncertainty, the vaccines will support the recovery from the second half, as shown in the following chart, to facilitate the release of pent-up demand, the gradual recovery of tourism and the impact of the Recovery Plan.

OECD asks Spain maintain consolidating recovery stimulus

For this reason, the OECD calls for to keep the stimulus policies to consolidate the recovery, but specifying that the support should focus on the sectors and businesses that are most affected by the coronavirus, proposes "to execute without delay the direct aid recently announced" for companies that may again be profitable and maintain the prevalence of company agreements on the sector within the labor reform.

The secretary general of the OECD, Ángel Gurría, has recognized the effort made by Spain and stressed that vaccination is key to recovery, ensuring that "it is the most effective economic policy", although he has also affirmed that Spain is the country that will receive the most European aid from the Next Generation EU fund. However, he had stressed the importance of the system of governance in the allocation of those funds, while noting that there might be problems in its implementation.

Gurría has asked to turn into opportunities the challenges that the coronavirus has revealed and those that Spain was already dragging before the pandemic, focusing on companies and families most affected the maintenance of stimulus measures until the recovery is consolidated, to avoid "repeating the mistakes of 2008", when he has recognized that fiscal consolidation began before the economy had fully recovered.

OECD asks Spain maintain consolidating recovery stimulus

For her part, the economic vice-president, Nadia Calviño, has been satisfied with the support of the OECD to the fiscal response to the pandemic in Spain and has stressed that at this time of transition to recovery the high rate of vaccination remains key, as well as the maintenance of stimulus measures, noting that all international organizations defend delaying their withdrawal to help the recovery of the economy and employment.

Calviño highlighted the importance of the recovery plan to boost the recovery but also the modernization of the Spanish economy for more sustainable and inclusive growth and correct the deficiencies of the labor market. "The plan is based on a diagnosis shared with international organizations," he said, highlighting its importance in generational justice, reinforcing environmental investments, digitalization and structural reforms.

In employment, the report promotes "fix the structural problems of the labour market can contribute to reducing inequality, which was already high before the pandemic," noting that the impact of the coronavirus in employment has been more pronounced in young people, temporary contract workers or low-skilled, and therefore calls for raising the efficiency of the active employment policies to improve their employability.

OECD asks Spain maintain consolidating recovery stimulus

"The widespread use of temporary contracts increases labour inequality and poverty," says the OECD, which recognizes that temporary employment can help sectors affected by the pandemic in the short term, but calls for reducing the duality of the labour market in the medium term, focusing recruitment incentives on the most vulnerable groups and limiting their duration and reducing contract types.

In addition, the report recommends evaluating the impact of the rise of the minimum wage, which it defines as "fast and accused", in the employment of young workers and less skilled, proposing to create an independent commission to define the minimum wage, to study their effects and to propose recommendations to adapt its evolution to the conditions of the labour market and productivity.

OECD asks Spain maintain consolidating recovery stimuli: On the other hand, despite asking for the maintenance of the stimulus measures, the OECD calls contain the fiscal challenges in the medium term, proposing a fiscal consolidation gradually, so as not to damage the recovery and asking the Government a strategy of fiscal consolidation in the medium term to all levels of the administration that performs high levels of debt and contribution "the credibility of fiscal sustainability", according to the study.

To this end, the report calls for improving the composition and efficiency of public spending in order to increase public investment in the medium term, advocating revisions of spending at all levels to improve their results. In addition, it warns that these fiscal challenges will be aggravated by the doubling of the dependency rate of the elderly between 2021 and 2050, so it claims to adapt the legal retirement age to the effective age or increase the contribution period to receive a full pension.

OECD asks Spain maintain consolidating recovery stimuli: With regard to the pension reform currently being negotiated by the Government with the social partners, Gurría has asked to link retirement to life expectancy, as he says is already happening worldwide, and to combat early retirement through appropriate incentives while gradually delaying the legal retirement age.

With regard to digitisation, the OECD devotes a chapter of its report to stimulating its dissemination, ensuring that it will improve productivity and help companies emerge from the crisis. In addition, it notes that Spain is making progress in digital transformation, but highlights that there is room for improvement in the adoption and use of new technologies, since it reveals that its impact on business models is still limited and places the country at the tail of the OECD in volume of innovative companies.

In terms of fiscal policy, Gurría has recognized that the change of government in the US has served to break the existing blockade and expedite the reform of taxes to multinationals to avoid tax avoidance practices. In addition, it has considered it fair that the profits of multinationals are taxed and has recognized the Spanish Government's drive to achieve a global agreement to establish a minimum rate in corporate tax.

# OECD asks Spain maintain consolidating recovery stimulus #