Spain’s economic prospects continue to improve. The new forecasts of the European Commission predict better-than-expected growth for 2024 that even exceeds the Government’s forecasts, 2.1% this year, four points more than what Brussels pointed out in February and one point more than what the Ministry of Economy itself anticipates. But in the report published today by the community executive another percentage also shines brightly, the 3% deficit that, according to European technicians, the Spanish economy will register at the end of 2024, a figure that coincides with Moncloa’s forecast. This data, added to a higher-than-expected growth last year and the upward revision for this one, encourages the Executive’s hopes of getting rid of the opening of a file for excessive deficit in June, when the countries in which it exceeds 3%.
After four years on hold as a result of the pandemic and the Russian invasion of Ukraine, the European Union reactivated the stability and growth pact in April in a reformed version that, while maintaining the original deficit and debt reference thresholds (3 % and 60%), introduces new references and mitigating factors, such as defense investments, in addition to expanding the Commission’s margin of appreciation.
This new approach and the forecast that at the end of the year the public deficit will be under control, added to the fact that this year is halfway between the two regimes, has given the Government arguments to demand that a deficit procedure not be initiated. excessive that would force Spain to apply a more demanding adjustment path. The problem for Spain is that, according to Eurostat data published in April, 2023 closed with a deficit of 3.6% of GDP. The vice president of the Community Executive, Valdis Dombrovskis, said this week that although the reference threshold is 3%, “there is the possibility that in cases of a minimal and temporary deviation, we will not open files.”
Asked about the case of Spain, the European Commissioner for Economy, Paolo Gentiloni, has left the decision up in the air. “On June 19 we will prepare the famous reports for the countries that violated the 3% threshold in 2023, when in the case of Spain it was 3.6%. Our forecast is that it will be reduced to 3% this year and 2.8% next year,” he recalled. The report will take into account both the objectives and “all relevant factors” to make a decision. “I cannot prejudge what the conclusion of these reports will be for any country. We have to wait one more month,” concluded Gentiloni, who predicted “a hot summer” in fiscal terms for European governments, which in September must notify Brussels how they plan to clean up their public accounts.
Although Spain may hope to be left out of the next round of files, other large economies have it more difficult and have assumed that on June 19 the Commission will ask them to account. This is the case of Italy, which closed 2023 with a deficit of 7.4%, or France, which registered 5.5%. In total, eleven countries recorded a public deficit above 3%. Asked about the possibility that the beginning of a new stage of fiscal consolidation will stifle growth, Gentiloni has hidden that it will be necessary to “maintain a balance” and avoid “too restrictive fiscal positions.” “We must not bring our economy back to stagnation,” stressed the Italian social democrat, who believes that the new fiscal rules give the Commission “the necessary room for maneuver” to achieve these results.
According to the report published today, the European Commission predicts that Spain will register a growth of 2.1% of GDP this year, four points more than what they pointed out in February and one more than what the Government itself expects (2%). Brussels anticipates a slight slowdown in 2025, when the increase in national wealth would be limited to 1.9%. Both percentages are above the growth forecasts for the eurozone, 0.8% and 1.4% respectively, figures that nevertheless represent a noticeable improvement compared to 2023, when only 0.4% was recorded as a result of the stagnation of Germany and other northern economies.
The atmosphere of contained optimism that exists today in the Commission is also supported by the fact that, in addition, inflation could be reduced more quickly than expected. According to its new calculations, it will be reduced to 2.5% this year to fall to 2% in 2025, the objective of the monetary policy of the European Central Bank, compared to the February forecast, which calculated that this year would remain at 2.7% and the next would continue at 2.2%.
“The European Union economy has rebounded strongly in the first quarter of the year, indicating that we have turned the page after a very complicated 2023. We expect an acceleration in growth this year and next, with private consumption driven by declining inflation, the recovery of purchasing power and continued employment growth,” says Gentiloni, who attributes the forecast of a general decline in prices to deficit figures mainly due to the withdrawal of public support measures in the face of the energy crisis. The direction of the debt, however, will continue to increase, which reinforces “the need for fiscal consolidation while protecting investments,” concludes Gentiloni, who recalls the high degree of uncertainty surrounding these forecasts and the growing risks. as a consequence of the two open wars in the European neighborhood, Ukraine and Gaza.
In the chapter reserved for Spain, the Commission highlights the “solid result” in terms of growth in 2023, supported by the “robust” developments in the labor market, “which supported private consumption.” The first quarter of the year has started with a growth of 0.7% of GDP, a trend that is expected to be maintained during the rest of the year, but which will be subject to risks derived from the weakness of some of its trading partners.
Regarding employment, Brussels anticipates that the reduction in unemployment, which was 12.1% in 2023, will continue but will remain “at a high level”, standing at 11.6% this year and falling to 11.1% in 2025, practically double the average expected in the euro zone (6.6% and 6.5% respectively). Regarding inflation, the Commission expects it to go from 3.4% in 2023 to 3.1% at the end of this year. The withdrawal of fiscal support measures due to the energy crisis, although it has already begun, will allow the Government to continue the reduction of the public deficit expected for 2024 (3%) during the next year, when it should be at 2. 8%, another data that could strengthen Spain’s options of being left out of the next round of community files.
Sources from the Ministry of Economy celebrate the forecasts published today by the European Commission and highlight that Spain will continue to lead economic growth among the main countries in the euro zone for two consecutive years, until 2025. “These data confirm the effectiveness of the Government’s economic policy, which is allowing one of the highest growth rates in Europe to be combined with a sustained reduction in inflation, and the improvement in the purchasing power of families and the competitiveness of companies. These forecasts also certify the Government’s commitment to a responsible fiscal policy compatible with the maintenance of measures to help the most vulnerable groups,” they point out in the Ministry headed by Carlos Body.