"Spain is immersed in a prolonged recession that has been compounded by the continuing crisis in the euro area," the OECD said.
"The path to recovery has been launched, but will require full implementation of reforms and some additional measures to restore confidence in the financial sector," the OECD said in a report presented to Spanish Minister of Economy and Competitiveness Luis de Guindos in Madrid by OECD Secretary-General Angel Gurria.
The OECD is an international economic research agency that serves 34 countries including Japan, the United States, Chile, France, Germany, Italy, Ireland, Canada and Israel.
Gurria said Spain had "launched a courageous reform program ... to address the root causes of today's crisis."
The OECD report said Spain had made "substantial budgetary consolidation measures," and had tightened budgetary rules.
The report also praised Spain for "broad and deep reforms of the labor market and the banking sector."
"We are already seeing positive developments and results," Gurria said, "particularly in terms of restoring competitiveness and closing imbalances with Europe."
But the OECD said Spain should "aim at meeting headline deficit targets."
"However, if growth is far lower than expected, a higher deficit is acceptable and automatic stabilizers should be allowed to operate."
Spain should also "avoid a disproportionate impact of the crisis on low-income households," and continue with labor reforms, the report said.
The OECD said "more could be done to reduce labor market duality."
"Abolition of the legal extension of collective bargaining outcomes would offer companies greater flexibility to adapt to economic conditions," the report said.
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