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HomeLatest NewsMoody's warns that a political blockade will drag down Spain's fiscal targets

Moody’s warns that a political blockade will drag down Spain’s fiscal targets

Date: April 21, 2024 Time: 01:14:26

The credit agency Moody’s plans a deficit of 4% of the Gross Domestic Product (GDP) for 2023 and 3.2% in 2024. This means correcting the government forecasts for this year and the following year by one and two tenths respectively. This deficit path explains the firm in a recent analysis, it would place the debt/GDP ratio at 111.9% this year and just below 110% in 2024.

For its part, the entity has taken advantage of the report to make some notes regarding the elections that took place last Sunday, July 23, where there was no clear winner, neither the left nor the right bloc. Likewise, they also emphasize that the political blockade and the uncertainty of the Government would weaken the capacity of the authorities to face fiscal challenges.

In turn, Moddy corroborated that they could suffer consequences for the formulation of policies in the fiscal field. He points out that in this scenario, political parties have shown “reactions” that address the challenges of Spanish public finances. For this reason, the agency believes that reaching the budget deficit target of 3% of GDP will be necessary and demanding, as well as continuing to heal public finances.

Warns about political weakness

The agency also warns that, in view of the electoral results on Sunday, a prolonged political blockade “would weaken the authorities’ ability to face Spain’s fiscal challenges”, in a context, he adds, of “deceleration of economic growth”.

To this equation we should also add the restoration of fiscal rules in the European Union, which were suspended due to the pandemic. These new rules are likely to be different from those known to date. Moody’s points out that the restoration of tax buffers during good times is a “key” aspect of the current debate around the reform of EU tax rules.

Regarding the future credit profile of Spain, Moody’s recognizes that the Spanish economy maintains greater resistance and less susceptibility to event risk than in the financial crisis of 2008. Therefore, the agency points out that the evolution of public finances will be “key” for the country’s rating in the coming years.

Finally, the agency has dedicated a part of its report to extol the pro-European position of Spain, which a judgment of the firm shows in that PP and PSOE have been the parties with the most votes in the elections and the reduction of temporary employment with the labor reform. On this last point, Moody’s points out that it has made the Spanish economy more resistant to shocks.

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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