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IMF urges Spain to keep reform focus ahead of elections

[WASHINGTON] Spain must stay the course on economic reforms if it wants to generate growth and reduce its sky-high unemployment rate, ahead of a year-end general election, the International Monetary Fund said Friday.

"The clearer we are in not reversing existing structural reforms and fiscal consolidation, the stronger is the defence against any external risks," said Helge Berger, chief of the IMF mission in Spain following the publication of the body's annual report on the country.

The Washington-based IMF warned that backtracking on reforms would "create uncertainty and damage the recovery, especially if external conditions deteriorate." Spain is benefiting from a weaker euro which helps boost exports and lower oil prices and is less exposed to "external contagions" such as the Greek economic crisis, it added.

The country emerged in 2013 from five years of on-off recession and the government forecasts the economy will grow by 3.3 per cent this year - more than twice the average forecast for eurozone countries.

Prime Minister Mariano Rajoy's conservative government credits new rules adopted in 2012 for making it cheaper for firms to lay off workers and limiting the power of unions to negotiate collective-bargaining agreements across entire industries or regions for the recovery.

The IMF said Spain needed to adopt "additional reforms" to take advantage of the economic recovery and reduce the unemployment rate, which stood at 22.4 per cent in the second quarter, the second-highest rate in the eurozone after that of bailed-out Greece.

It recommended further reforms of the labour market as well as measures to address the lack of competitiveness of Spanish firms.

The IMF maintained its forecast of economic growth of 3.1 per cent in Spain this year, slightly below the 3.3 per cent expansion predicted by the Spanish government.

It sees the Spanish economy, the eurozone's fourth largest, expanding by 2.5 per cent in 2016 while the government predicts growth of 3.0 per cent.

Mr Rajoy's economic reforms have been criticised by opposition parties, especially new far-left party Podemos, a close ally of Greece's ruling Syriza, which made gains in May local elections.

Spain's ruling Popular Party lost power in several regions and cities, including Madrid, a long-time conservative bastion.