The Spanish economy will continue to lead the growth of the euro zone for two more years and could avoid the opening of an excessive deficit procedure in view of the forecasts published yesterday by the European Commission and the signals it sends on how it will address the reactivation of the stability and growth pact after four years of suspension.

More optimistic than the Spanish Government itself, Brussels has revised upwards its forecasts for Spain, as have already been done by the International Monetary Fund and the Bank of Spain, and predicts a growth of 2.1% for this year, four tenths more than what its technicians pointed out in February and one more than the Ministry of Economy anticipates, a figure that is based on the “robust” evolution of the labor market and the gradual reduction in the rate of household savings. Brussels anticipates a slight slowdown in 2025, when GDP growth would be limited to 1.9%.

Regarding employment, it anticipates that the reduction in unemployment, which was 12.1% in 2023, will continue, but will remain the highest in the EU: 11.6% this year and 11.1% in 2025, almost double the average of the Eurozone (6.6% and 6.5%).

The good growth expectations for Spain are well above the forecasts for the Eurozone, of 0.8% and 1.4% for 2024 and 2025 respectively, figures which, nevertheless, represent a significant improvement compared to 2023, when it was only 0.4% as a result of the stagnation of Germany and other northern economies.

“The economy of the European Union has grown strongly in the first quarter of the year, which indicates that we have turned a page after a very complicated 2023. We expect an acceleration of growth during this year and next, with private consumption driven by the decline in inflation, the recovery of purchasing power and the continuous growth of employment”, the Commission celebrated in a statement.

Another reason for some moderate optimism is the forecast that inflation will come down faster than expected. According to its new calculations, it will drop to 2.5% this year and fall to 2% in 2025, the objective of the European Central Bank’s monetary policy, compared to the February forecast, which calculated that this year would be at 2.7% and the next one would continue at 2.2%.

Another figure shines strongly, in the eyes of Spain, in the community report, the 3% deficit that, according to the EC, the Spanish economy will register at the end of the current financial year, a figure that matches with the Moncloa forecast. It is the limit set by the stability pact, and this encourages the hopes of the Spanish Executive to get rid of the opening of an excessive deficit file in June, when the countries that exceed this threshold.

The problem for the Spanish Government is that in 2023 the closing figure was 3.6%, as published in April by Eurostat, which identified ten more countries with figures above 3% of GDP. The reformed version of the stability pact expands the margin of appreciation of the Commission on each fiscal situation and plans to take possible mitigating factors into account. This change, added to the fact that the current financial year is in the middle of the two regimes and that by the end of the year the deficit will have dropped by 3%, has given arguments to the Spanish Government to claim to get rid of the excessive deficit procedure, a decision which would have more of a reputational or political impact than a budgetary one, since the forecast is to reach the desired 3% this year.

In the case of Spain, the European Commissioner for Economy, Paolo Gentiloni, left the door open not to act in cases of “minor or temporary” deviations. “The report will take into account all relevant factors”, but “I cannot prejudge what the conclusion of these reports will be for any country. We have to wait another month”, he said. There will therefore be eleven reports, but not all of them will necessarily lead to the opening of excessive deficit procedures. Gentiloni anticipated “a hot summer” in fiscal terms for European governments, which in September will have to notify Brussels of how they plan to clean up their public accounts. Italy and France, which recorded deficits of 7.4% and 5.5% in 2023 respectively, have assumed that Brussels will hold them to account and are already thinking about how to design their adjustment proposals, which all countries with red numbers will have to present in September.

Regarding the possibility that the start of a new stage of fiscal consolidation will stifle growth, Gentiloni advocated “maintaining a balance” and avoiding “too restrictive fiscal positions” in order not to bring the European economy back to the ‘stagnation.