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Spain's biting recession may end soon but the outlook is tough and Madrid must do more to battle the unacceptably high unemployment rate, the IMF warned Wednesday.
Spain's economy, still reeling from a 2008 property market crash, fell into a double-dip recession in 2011 and the unemployment rate has soared to more than 27 percent.
Prime Minister Mariano Rajoy's government says it believes the recession is close to bottoming out.
Economy Minister Luis de Guindos said Tuesday that the country was "coming out of the recession" and the previous day Budget Minister Cristobal Montoro said the economy was at a turning point.
The International Monetary Fund, in an annual review of the eurozone's fourth-largest economy, agreed that the contraction may be coming to an end.
But it cautioned that tough times lay ahead.
"While there are signs the economic contraction may end soon, the outlook remains difficult," the Washington-based Fund said in a report.
The IMF said it expected the Spanish economy to start to grow later this year and to pick up to a pace of one percent in the medium term, with only "limited" gains in employment.
Spain's borrowing costs soared in mid-2012 as investors fretted about the country's bulging annual deficits, soaring debt, recession and joblessness, pushing the country close to an international bailout.
In the end, Spain avoided a full-blown bailout but was thrown a 100-billion-euro credit line by its European Union partners to clean up the bad loan-ridden banks.
So far, Madrid has used only 41.3 billion euros of that money.
The IMF welcomed Spain's recent strong export performance but cautioned that corporate and consumer struggles with high debt could slow the economy.
Financial market pressures, too, could return, it said.
"This outlook calls for raising the reform effort to the level of the challenge," the IMF report said.
"Spain needs to deliver on its announced program and indeed go further in some areas. The focus should be a on a pro-jobs strategy that allows the economy to grow and hire."