Implementation of Spain’s financial sector program remains on track. The vast
majority of measures specified in the program have now been implemented, as envisaged
under its frontloaded timetable. Most notably, actions to recapitalize parts of the banking
sector and the asset transfers to SAREB have provided an important boost to the system’s
liquidity and solvency.
Correction of Spain’s large external, fiscal, and financial imbalances is
well underway, with policy actions at both the European and Spanish levels helping to ease
market pressures over the last year. Nonetheless, further adjustment remains, and the process
continues to weigh heavily on domestic demand, with output still shrinking and unemployment
rising to record levels. Financial sector dynamics still contribute to recessionary pressures, with
credit contraction accelerating, lending standards tightening, and lending rates to firms rising.
majority of measures specified in the program have now been implemented, as envisaged
under its frontloaded timetable. Most notably, actions to recapitalize parts of the banking
sector and the asset transfers to SAREB have provided an important boost to the system’s
liquidity and solvency.
Correction of Spain’s large external, fiscal, and financial imbalances is
well underway, with policy actions at both the European and Spanish levels helping to ease
market pressures over the last year. Nonetheless, further adjustment remains, and the process
continues to weigh heavily on domestic demand, with output still shrinking and unemployment
rising to record levels. Financial sector dynamics still contribute to recessionary pressures, with
credit contraction accelerating, lending standards tightening, and lending rates to firms rising.
