The Spanish economy will grow less than expected in 2024, but will improve its evolution this year. The macroeconomic forecasts sent by the acting Spanish Government to the European Commission predict an improvement in GDP of 2% for the next financial year, four tenths less than that foreseen in the stability program in April, and a growth of 2.4% by 2023, three tenths more. Despite the slowdown in the future scenario, the Spanish Government emphasizes that “Spain will continue to lead the economic growth of the Eurozone in 2023 and 2024”.
It is a budget plan that foresees an “inertial fiscal scenario” because the Executive is in office. The Ministries of Economy and Finance, therefore, cannot commit to new items of expenditure. In this sense, the document leaves in abeyance the extension of some of the measures in force in order to combat inflation, such as the reduction of VAT on electricity or certain foods, or the possibility of having a pillow to approve other new ones. The acting Central Executive does commit to prolonging the revaluation of pensions with the CPI, the increase in the minimum vital income and the increase in the salary of public workers in 2024.
The current Spanish Government also conveys to Brussels that aid to promote the use of public transport will be maintained in 2024, for two reasons. First of all, because the free travel in the Suburbs, as well as the bonus for other transport such as the metro and the bus, is regulated in the general budgets in force. The forecast is that these public accounts will be extended at the beginning of the year, which is why it is planned to maintain these measures at least until there are new budgets. In addition, the Ministry of Transport states that it is studying a new bonus for public transport over the next year, confirming that this type of aid will not disappear because it is a “transversal policy”.
In a scenario of the return of fiscal rules, Spain undertakes to reduce the public deficit to 3% of GDP by 2024. In order to comply with this path, the roadmap of the Spanish Government in office foresees that this exercise will be closed with a lag of 3.9%.
The public debt, for its part, will continue in a progressive decline until it reaches 108.1% of GDP this year and 106.3% in 2024. “The good performance of the economy will make it possible to anticipate the objective of debt, and place it below 110% of GDP in 2023”, highlights the document that the community authorities already have.
The Spanish Government admits in the roadmap that the Spanish economy faces a scenario of high uncertainty “due to the international context” (it does mention the war in Ukraine, but not expressly the recent conflict in the Middle East) , and the impact of the ECB’s contractionary monetary policy.
Regarding the rise in prices, and with the aid measures pending, the Spanish Government assures that “food inflation continues to decrease in 2023 and contributes to accelerating the convergence of inflation towards 2%”. Even so, significant increases in the CPI will continue to be recorded this year: the GDP deflator will close the year at 5.9%, by 2024 it will begin to moderate at 3.6%.
The Fiscal Authority endorsed the macroeconomic picture presented by the Spanish Government in office, but warned that it is an overly “optimistic” roadmap for the growth of domestic demand. The rise in interest rates and the end of social shield measures could lead to a worsening of business and household confidence, the supervisor said.
In terms of employment, the budget plan envisages lowering the unemployment rate to 10.9% at the end of next year. “The labor market will maintain its dynamism also in 2024, and place full-time employment close to 20 million”, the document notes.
The current Ministry of Finance estimates that the collection record will be broken again in 2024. For this year, it expects tax revenues of 356,052 million and for the next it is expected to raise this figure to 382,755 million, a 7.5% increase. The new improvement in tax revenues expected is due to the good behavior of the personal income tax due to the improvement in employment (more quantity and better quality) and the revaluation of pensions with the CPI.
It is also due to measures that entered into force this 2023 but will be extended next year, such as the rate increase for the highest incomes above 300,000 euros or, in the case of corporation tax, the impact of the limitation of the compensation of losses in business groups.
