Spain will barely manage to reduce its public deficit to 4% between now and the end of next year -in relation to the end of 2022- if it does not carry out an additional adjustment in spending. This consolidation of eight tenths of a point in the imbalance of public accounts would be due above all to the increase in tax revenues despite the context of slowdown facing the national economy. GDP will go from growing at 5.5% in 2021 and 2022 to 2.1% this year and 2.3% next year. These are some of the conclusions of the outlook report prepared by the consultancy Equipo Económico, which coincide in its growth calculation with the Government’s forecast for this year. This is a more optimistic estimate than that of the OECD (1.7%), the Bank of Spain (1.6%) or the one recently published by the European Commission (1.4%).
The firm attributes this slowdown to the expected decline in household consumption and the lower contribution of external demand given the slowdown in several of the European markets, which are our main trading partners, and due to the recent financial turmoil caused by the bankruptcy of the US Silicon Valley Bank (SVB) and the problems in Europe of Credit Suisse and Deutsche Bank. Despite the positive role that the arrival of the Next Generation funds (NGEU) will have in terms of boosting investment, the Spanish economy would continue to be “only slightly above its potential growth level,” they add.
In their central scenario they contemplate that inflationary pressures will remain high both this year and next year, with a rate decidedly lower than last year, thanks to the softening of supply shocks and the energy crisis. Specifically, expect the general CPI rate to stand at 4.4% on average this year, with sharp declines during the spring and summer months thanks to the base effect (or comparison with rates that shot up in those months last year). until reaching a peak of 10.8% in July).
The Fundación de las Cajas de Ahorros (Funcas) recently pointed to a scenario of saw teeth in inflation rates for the remainder of the year and the Government itself acknowledged to this newspaper that they foresee a very volatile behavior of this indicator throughout the year. year, although with rates half as high as a year ago. In ‘Economic Team’ they warn that the increase in prices has been transmitted to the economy as a whole, so that the underlying (which excludes energy and fresh food) will be around 4.9 this year % and the next one will remain above 3%.
Despite the lower expected boost from foreign trade in 2023, “we estimate that the Spanish economy will maintain its external financing capacity”, thanks especially to the contribution of the tourism sector. This will bring the current account balance to 0.4% of GDP, below the 0.6% registered in 2022. Thus, the difficult global economic outlook will not prevent the foreign sector from continuing to be an important source of strength for the Spanish economy, with the country reducing its international debt position, as well as its gross external debt.
less fiscal space to face future crises
They also warn that Europe, and in particular Spain, currently have less fiscal room to deal with future economic crises, due to the behavior of their public finances in recent years. In a context of greater prominence of the public sector, “the lack of fiscal discipline has caused a sharp increase in Spanish public debt in recent decades above the European average”, they point out, although they recall that, unlike what happened At the beginning of the last financial crisis, the current situation is one of greater public indebtedness and less private indebtedness.
According to the latest figures published by the Bank of Spain, the public debt to GDP ratio has been falling in recent months to stand at 113.1% at the end of 2022, more than two points below the Government’s target for the whole year that was fixed in the budget plan sent to Brussels last October (115.2%). It is one of the weak points of an economy that should take advantage of the opportunity that European funds will offer it in the medium term to encourage investment, given that it has the potential to become a world leader in energy transition.