It estimates that the deficit will be 3.2% until 2028 and to place it below 3% it would be necessary to cut 9.5 billion annually
The Independent Authority for Fiscal Responsibility (AIReF) has lowered its estimate of growth of the Gross Domestic Product (GDP) in Spain for 2024 to 1.7%, but maintains the reduction of the deficit to 3% of GDP as long as the measures are withdrawn against the energy and price crisis and territorial administrations contain increases in spending.
Specifically, AIReF has revised the growth of the Spanish economy downwards by three tenths for 2024, since in its previous forecast it was set at 2%. However, in the fiscal area, they have endorsed the Government’s forecast regarding the deficit for Public Administrations at 3%, which would imply that the debt would begin a downward path after reaching 106% of GDP by 2028.
During the presentation ‘Projects and Fundamental Lines of the Budgets for 2024’, the organization has indicated that public debt will continue to decrease in both years (2023 and 2024), but points out that Spain will continue to be one of the countries of the Economic Union and Monetary with the highest levels.
“We are seeing a slowdown in the pace of growth of the economy, as we had been warning from AIReF, with indicators that are already materializing and that have led us to revise GDP growth downwards for 2024,” stressed the president of AIReF, Cristina Herrero.
GDP GROWTH OF 2.3% BY 2023
AIReF’s GDP growth forecast for 2023 remains at 2.3% for this year, with an estimate of growth in the third quarter of one tenth and two tenths for the fourth quarter due to good performance of tourism , favorable exports and a “relatively” favorable behavior of the Active Population Survey (EPA) for the third quarter of the year, especially with regard to affiliation.
In the medium term, the organization estimates that, under constant policies, the Spanish economy will grow around 1.3% after a slight rebound in 2025, which would reflect the exhaustion of the effects associated with the tightening of domestic and global conditions.
INFLATION OF 3.9% IN 2023 AND 4% BY 2024
AIReF’s forecast is that inflation – measured by the private consumption deflator – will remain around 3.9% for 2023 and 4% for 2024, while it expects a reduction in the GDP deflator from 5.8% estimated in 2023 to 3.2% by 2024.
“The price containment that would be expected as the pass-through of past production cost increases and base effects associated with food prices in 2024 is completed will be offset by the acceleration of nominal wages, disappearance of measures implemented to mitigate the effects of inflation on family income and the increase in oil prices,” Herrero explained.
In the medium term, the organization predicts that inflation would converge at the European Central Bank (ECB) reference rates of 2%, once the pressures on prices are exhausted.
DEFICIT OF 4.1% BY 2023, TWO TENTHS ABOVE
AIReF estimates for all public administrations a deficit of 3% for 2024 in line with the Budget Plan, after closing 2023 at around 4.1%, two tenths above the Budget Plan forecast and without changes compared to to the July report.
However, Herrero has warned that the deficit reduction forecasts of 1.1 points for 2024 will “only” materialize if the measures adopted to alleviate the effects of the energy and price crisis are not extended and if territorial administrations contain spending increases.
In the medium term, the organization has estimated that the public administration deficit will rise again to 3.2% of GDP in 2025 due to the withdrawal of temporary measures to increase income and will stabilize at that level until 2028, if not additional measures are adopted, thus remaining above the 3% limit set by the Stability and Growth Pact.
ADJUSTMENT OF 9,500 MILLION PER YEAR TO CONTAIN THE DEFICIT TO 3%
For this reason, Herrero has assured that to comply with the deficit path and achieve the European guidelines, it is necessary to take measures during the period 2025-2028 worth 0.63 points of GDP per year, which represents a fiscal adjustment of 9.5 billion of euros per year.
In the case of income, not including the Transformation and Resilience Recovery Plan (PRTR), they will reach 42.7% of GDP after closing 2023 at 42%.
In the medium term, AIReF foresees a small reduction in resources in 2025 due to the withdrawal of temporary measures to increase income, such as taxes on the energy and banking sector or the boost for large fortunes, to grow again. in 2028 up to 43.1% due to the progressivity of income taxes.
For its part, expenses, not including the PRTR, will fall to 45.7% of GDP in 2024, after reaching 46.1% this year, while in the medium term they will increase their weight in GDP until reaching 46.3 % in 2028 due to the growth in pension spending and interest that will progressively increase in weight.
SURPLUS OF TWO TENTHS IN 2024 IN CCAA AND CITY COUNCIL
On the other hand, AIReF has estimated a surplus in 2024 of 0.2% of GDP in local corporations and autonomous communities. In the first case, after reaching 0.1% in 2023, and in the second, after having a deficit of 0.6% of GDP.
By subsectors, the Central Administration will only reduce its deficit by one tenth in 2024, to 3.1% of GDP due to the extraordinary increase in the liquidation of territorial financing systems. Subsequently, it will stabilize at around 2.9% until 2028.
Regarding the deficit of the Social Security Funds, they will also stabilize at 0.4% of GDP in the medium term. “The growth of pension spending will moderate once inflationary tensions and unemployment benefit expenses have been overcome, while contributions will moderate their growth in line with the evolution of employment and wages, incorporating the impact of the Intergenerational Equity Mechanism and the rate of solidarity,” they added.
