MADRID (Reuters) – Spain’s damaged economy needs urgent structural reforms to cope with the coronavirus impact, including letting smaller companies grow to compete better in Europe, the central bank head said on Tuesday.
“The design and implementation of reforms should be accelerated, as their credible implementation can generate positive effects on spending and investment,” Bank of Spain Governor Pablo Hernandez de Cos said.
Speaking to a Spanish parliamentary committee, he also noted the need for pension, labour and housing access reforms, and added that the strategy should be deployed on a long-term basis with consensus among political parties.
“Fiscal consolidation, for its part, should be implemented once the economy returns to a solid growth path, but its early definition and communication would have important benefits for the credibility of our economic policy,” he said.
Spain, one of the nations worst-affected by the COVID-19 with 28,324 deaths, is heading for its worst economic performance on record in 2020, with a contraction of between 9% to 11.6%, according to the Bank of Spain.
On Tuesday, De Cos said activity had already started to recover during the lifting of a three-month lockdown.
“If this continues, it will give way to a more favourable performance in the second half of the year,” he said, noting, however, that there was still “considerable uncertainty” and the contraction could be as bad as 15% this year.
De Cos said that in the best-case scenario, Spain could grow 16% in the third quarter versus the previous three months, which would be its biggest quarterly increase on record.
The governor also said mechanisms were needed to encourage the growth of small- and mid-sized companies to reduce higher borrowing costs compared to European peers.
To continue supporting businesses, De Cos said an extension of the amount of the 100 billion euros ($112.88 billion) state-backed credit lines may be needed.
He also said an extension of furlough schemes in some sectors, such as tourism and hospitality, should be considered in coming months.
($1 = 0.8859 euros)
(Reporting By Jesús Aguado and Emma Pinedo; Editing by Andrew Cawthorne)