The Government has sent the European Commission the updated macroeconomic and fiscal forecasts for the years 2024 and 2025, which confirm the good performance of the economy in these years and the commitment to bring the deficit down to 3% this year, thus complying with the EU Stability Pact.

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The government ratifies the commitment to bring the deficit down to 3% of GDP this year

With the entry into force of the new European framework of fiscal rules, the obligation to present the Stability Programme of the Member States ceases. In its place, a Structural Fiscal Plan must be submitted before 20 September, which will be binding.

In any case, the Spanish government has considered it appropriate to submit an update of the macroeconomic and fiscal forecasts for 2024 and 2025.

Spain would continue to lead economic growth
The macroeconomic outlook for 2024 and 2025, based on the latest available data, has been endorsed by the Independent Authority for Fiscal Responsibility (AIReF).

The Government forecasts a 2% increase in GDP for this year and 1.9% for 2025, one-tenth of a percentage point higher than the previous forecast. It highlights the solid performance of the Spanish economy, in a complex international scenario.

Spain will continue to lead economic growth among the main European economies in 2024 and 2025. After closing last year with GDP growth more than five times higher than the euro area average, this improved performance will also be maintained in the first quarter of 2024.

Domestic demand will be the main driver of the economy, driven by the positive evolution of investment, thanks to the evolution of investment due to the implementation of the Recovery Plan, and by household consumption, supported by the dynamism of employment and the gain in purchasing power of wages.

This dynamism of the labour market, together with the growth forecasts for employee remuneration, the progressive deceleration of inflation and the financial strength of households, will allow the purchasing power of citizens to continue to improve.

Investment will accelerate in the coming years, especially in capital goods, thanks to the positive evolution of business confidence and the continued momentum of the Recovery Plan.

Exports, especially services exports, will remain strong and competitive, which will allow the Spanish economy to maintain its financing capacity.

The Government ratifies its commitment to meet the Stability Pact’s deficit target of 3% in 2024.
The document recalls the government’s commitment to an ambitious stability path that has already enabled Spain to reduce the deficit from 10.1% in 2020 with the outbreak of the pandemic to 3.6% in 2023. Thus, Spain has reduced its deficit by 6.5 points in three years and, as the report explains, has even improved its forecasts by reducing the deficit by more than it has committed to the European Commission.

The government’s estimate is that the deficit will fall to 3% in 2024, as foreseen in the fiscal path of the last Stability Programme. This will allow Spain to comply with the EU’s Stability and Growth Pact. Moreover, the deficit forecast in 2025 stands at 2.5%, which is two tenths of a percentage point less than in the previous path.

The economic momentum, strong job creation and the commitment to fiscal responsibility will allow the debt-to-GDP ratio to continue on its downward path. This reduction, higher than projected, will continue this year, falling to 105.5%, a decrease of more than 20 points in four years, and will continue in 2025, standing at 104.1%.

The fiscal update submitted to Brussels highlights that the improvement in the public deficit has been compatible with deploying a social shield of 120 billion to sustain the welfare state during the pandemic and the price hike as a result of the war in Ukraine.

Inertial revenue and expenditure scenario
The fiscal projections have been drawn up in an inertial scenario, i.e. in the absence of the approval of new measures, and in a context of the extension of the 2023 State Budget.

On the revenue side, the report projects the ratio of general government non-financial resources to GDP at 42.6% of GDP in 2024 and 42.9% in 2025. This slight increase is due, on the one hand, to the increase in economic activity, but also to following the European Commission’s recommendation to phase out the tax cuts implemented to combat the rise in inflation due to the war in Ukraine.

The document analyses the evolution by tax figures. Thus, it points out that personal income tax will improve due to the good performance of employment. Corporate income tax will also increase thanks to higher corporate profits as a result of economic growth. VAT revenue is expected to increase thanks to solid private consumption, which will grow by 2.4%, up from 1.8% in 2023. The gradual withdrawal of some of the VAT measures implemented to mitigate rising prices will also have an impact.

Government expenditure is projected to reach 45.6% of GDP in 2024 and to fall to 45.4% in 2025. This includes spending measures that will be maintained in any situation, such as the revaluation of pensions in line with the CPI or the increase in public employees’ salaries in 2024 in compliance with the Agreement reached with the trade unions for a 21st century administration.

In this way, the report submitted to the European Commission states that the fiscal strategy will allow Spain to continue reducing its structural deficit, reaching a primary fiscal surplus (excluding interest on debt) in 2025.

Recovery Plan
Finally, the document also reviews the implementation of the Recovery, Transformation and Resilience Plan and recalls that Spain is one of the most advanced countries in the deployment of the European Next Generation-EU funds.

The fulfilment of milestones and objectives has allowed Spain to receive a total of 37,036 million, of the total of 69,513 million of this first phase of the funds. Furthermore, with the approval of the Addendum in October last year, an additional 93,502 million euros will be mobilised, incorporating an extra 10,342 million euros in transfers and 83,160 million euros in loans.

The report also indicates the high rate of execution of the funds, since in the cumulative 2021-2023, in budgetary terms, obligations have been recognised for 60,266 million euros, which represents 77% of the accumulated credit. This trend is expected to continue in 2024.