The IMF warned on Friday of a fragile economic recovery with an expected growth forecast for 2011 lowered to 0.6 per cent from a 0.9 per cent forecast made in April.

The report from the IMF stated that “The particular challenges facing Spain will likely make the recovery slower and more fragile than in the euro area.”

The economic challenges facing the Spanish economy include the burst property bubble, a “dysfunctional” labor market, high indebtedness of the private sector, weak competitiveness, “anemic” productivity growth and a “banking sector with pockets of weakness”.

Spain dragged out of recession in the first quarter with a growth of 0.1 per cent over the previous quarter, a trend the Spanish government expects will continue, ending the year with a growth of 0.3 per cent. The IMF on the other hand views a 0.4 per cent contraction of the Spanish economy.

Spain Must Renew Itself

The IMF report also took a hit at the Spanish property bubble which fueled a huge economic growth over the past two decades leaving the country in shambles when it burst.

“What needs to happen now is that the economy as a whole has to move away from its past reliance on the housing sector and produce more tradable goods,” said IMF mission chief for Spain, James Daniel.