The Government foresees that the Spanish economy will maintain “a robust growth path” during the period between 2023 and 2026 that will allow the creation of 1.1 million jobs in these four years (up to around 21.6 million), as well as reduce theat unemployment rate up to 9.8% of the active population in the last year of the projection (three points below the 12.9% with which 2022 closed).
These are some of the guidelines of the macroeconomic picture document that the Spanish Government has sent to Brussels this Friday, within the mandatory Update of the Stability Plan 2023-2026 that all member states must send to the European Commission before April 31. In the document, the Government commits Spain to a primary structural adjustment of its budget of 1.6 points of GDP throughout this period (equivalent to just over 21,000 million today in four years) to reduce the public deficit from 4.8% of GDP in 2022 to 2, 5% of GDP in 2026.
“With all the precautions derived from the current high uncertainty, the Spanish economy will remain on a path of robust growth during the 2023-2026 period, driven by employment and private consumption, as well as by investments and reforms of the Recovery Plan“, maintains the Executive. The macroeconomic scenario designed in the Stability Plan maintains the growth forecast for the economy at 2.1% for 2023, after the accelerated increase achieved in the first part of the year (with a quarterly advance of 0 .5% driven by investment and exports, according to data published by the INE this Friday).
The Stability Plan also maintains the forecast of growth in the 2.4% by the year 2024. For the next two years, a more moderate advance is projected -from 1.8% in 2025 and 1.7% in 2026-, closer to what is now estimated to be the potential growth of the Spanish economy in 2026 (1.6%).
inflation and wages
In its projections, the Government anticipates that the so-called ‘private consumption deflator’ (a concept that is close to that of the inflation), will decrease from 6.8% in 2022 (an exercise in which average inflation reached 8.5%) to 3.9% in 2023; 3.2% in 2024; 2% in 2025 and 1.9% in 2026. “The fall in energy prices and the drop in the inflation will allow the extraordinary support measures in response to the impact of the war to be withdrawn during 2023 and 2024,” the document states.
In parallel, for this same period, it is expected that the average remuneration per employee it will chain increases of 4.7% in 2023; 3.3% in 2024; 2.4% in 2025 and 1.7% in 2026. “The evolution of salaries and margins does not point to possible second round effects” that feed a spiral of inflation, is noted in the document.
deficit and debt
The Stability Plan is the document that serves as the starting point for the preparation of the 2024 Budgets. In it, in addition to including the macroeconomic growth scenario, the Government incorporates its budget consolidation targets for the period. As Vice President Nadia Calviño anticipated this Thursday, the Executive has brought forward to 2024 the objective of reducing the public deficit to 3% of GDP, a goal that would allow Spain to avoid the budget discipline reinforced that plans to incorporate Brussels into the new fiscal rules to bridle the public accounts of the countries with the greatest imbalances.
Refering to public debt, the Government describes a path that goes from 113.2% of GDP in 2022 to 111.9% in 2023 to stand at 109.1% in 2024. Rates of 107.9% and 106 are forecast for the following two years .8%, very far, in any case, from the 60% benchmark that mark the stability rules of the European Union.
The fiscal path proposed for the period between 2023 and 2026 includes a gradual reduction of the deficit, from 3.9% of GDP forecast for 2023 to 2.5% in the last year of the projection. According to government calculations, this path includes a correction of the so-called ‘primary structural balance‘ of 1.6 points of GDP (equivalent to some 21,233 million euros in 2023). In other words: the Government estimates that in order to reduce the deficit to 2.5% of GDP in 2026 it will be necessary a structural adjustment of more than 21,000 million in the expenditure of the administrations as a whole (without counting interest on the public debt or variations in income and expenses linked to the economic cycle).
The Executive foresees a painless adjustment
The Government trusts in the possibility of achieving this adjustment without the need for great sacrifices.
On the one hand, he hopes for an increase in the tax burden from 39.7% of GDP in 2023 to 40.6% in 2026, without the need for new tax increases, but rather due to the effect of economic growth and employment on revenue collection taxes and contributions and by the “structural changes that derive from a change in the social behavior of the agents” (including better tax compliance).
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On the other hand, it is expected that the public spending will reduce by a point its weight in GDP in 2024 (up to 46.3%) while the measures derived from the health crisis and of the ukrainian war. The Government believes that spending will remain at that level until 2026 in a framework in which the increase in pension spending will be partially offset by the lower need for unemployment benefits.
It is anticipated that the defense spending will increase from 1.2% of GDP in 2023 to 1.3% in 2026. For the period between 2022 and 2050, the Government forecasts that the pension expenses will reach an average of 14% of GDP.