Spain

Time for a siesta? According to the OECD's latest country report, Spain has closed its output gap, after four years of strong growth. Recent structural reforms in Spain's product and labour markets have boosted employment, but have yet to increase productivity. Thus, as unemployment has dropped to 13%, from more than 20% in 1997, higher wage demands are being translated into higher prices. At close to 4%, Spanish inflation is also among the highest in the euro area. Inflation is, however, forecast to fall to 2.8% next year as growth slows in the wake of the global slowdown. But the OECD reckons that Spain still has plenty more labour-market reforming to do, particularly in the areas of wage bargaining and excessive employment protection, if it wishes to increase its potential growth rate.