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Spanish GDP could grow by 7.2% in 2021 if virus kept in check, IMF says

MADRID, Sept 30 (Reuters) - The Spanish economy could bounce back from its worst recession on record to grow by 7.2% in 2021 but that will depend on the government’s ability to limit new coronavirus infections, the International Monetary Fund mission said on Wednesday.

The size, timing, and composition of EU-funded spending programs will also affect the pace of recovery, the fund said in a report, warning that output would take several years to reach pre-pandemic levels.

“A failure to control new outbreaks, slower-than-anticipated progress on vaccines and treatments, a no-deal Brexit and escalation of trade tensions could subdue the outlook further,” the report said.

Following one of Europe’s strictest coronavirus lockdowns, Spain’s economy contracted a record 17.8% in the second quarter from the previous quarter and 21.5% compared with the same quarter a year earlier.

The IMF expects GDP to slump by 12.8% in 2020.

To cushion the blow for companies and workers, economic support policies should be extended and scaled, while fiscal measures should be maintained to limit the risk of stress on the financial system, the IMF said.

Some companies may also require a state bailout, though such equity support should be temporary and come with a clear exit strategy, the IMF said.

Following a deal between Caixabank and Bankia earlier this month to create Spain’s biggest domestic bank, the IMF said additional consolidation would be an “adequate response to profitability challenges.” (Reporting by Nathan Allen and Jesús Aguado Editing by Ingrid Melander)