IMF: Spain's outlook remains difficult, vulnerable (by Barbara Kollmeyer)

MADRID (MarketWatch) - The International Monetary Fund said the economic outlook for Spain "remains very difficult and vulnerable to significant downside risks," in a report on the country that published Friday. Officials said it remains critical that Spain maintains "sustained efforts and a clear, credible medium-term strategy for fiscal consolidation, financial sector restructuring and structural reforms." They said the success of this strategy in restoring confidence, jobs and growth "depends critically also on progress at the European level in strengthening the currency union." IMF officials praised Spain's efforts at bringing down the deficit and tackling its banking crisis, but cited the need to continue providing "official support for weak but viable banks, resolve non-viable banks and implement a comprehensive strategy to deal with legacy assets." The IMF said allowing direct recapitalization for Spanish banks via the European Stability Mechanism would "help break the adverse feedback loops between the sovereign and banks, and have positive spillover effects for the wider euro area." Officials added that quicker progress towards establishing a common supervisory mechanism for euro-area banks would also lift market confidence. IMF directors said Spain should stick to its "agreed fiscal path" and take extra measures as needed, "especially on the revenue side," and use available tools to enhance fiscal discipline, especially at the sub-national level.