Bank of Spain governor warns of challenges to recovery

Governor of the Bank of Spain Luis Maria Linde said that Spain was faced with challenges in achieving economic recovery.

The Bank forecast a slight economic recovery for 2014, with the Spanish government expecting a growth of 0.5 percent, said Linde Friday while presenting the Bank's 2012 annual report, which also warned of high unemployment rate.

The Organization for Economic Cooperation and Development (OECD) said Thursday that Spain's unemployment rate would reach 28 percent in 2014 as the country's economy is expected to return to growth.

Linde stressed that the economy needs to be more competitive, adding that flexibility in the labour market resulting from the labour reforms in February 2013 should be used as much as possible.

In its 2012 annual report, the Bank said the labour reform adopted by the government last year helped to make an adjustment between salaries and employment in the context of economic crisis, but more time was needed to see the full impact of the measure.

Linde said that there were important steps towards economic recovery in 2012 but the route to fiscal consolidation would be difficult as the country still has to carry out important adjustments.

The government also needs to put forward a policy to delay the retirement age to 67, a plan expected to be progressively implemented between now and 2027, the governor said.

Spain needs to gain credibility after the European Commission had offered more time for the country to meet its deficit target, adding that the deficit target for 2013 is 6.5 percent instead of the previous 4.5 percent.