Spain | Fiscal Watch. June 2023

The worse deficit performance in 2022 introduced negative biases on the forecast. As a result, the deficit forecast for 2023 is downgraded to 4.2% of GDP. With no fiscal policy changes, and considering the war-related measures as temporary, the deficit would be reduced in 2024 to 3.5% of GDP.

Key points

• Key points:
• Strong tax revenues, supported by resilient employment and wage and pension increases, would offset lower activity growth expected in 2023 and the impact of tax cuts to mitigate price increases.
• As the energy crisis is overcome and activity growth remains robust, automatic stabilizers and the unwinding of temporary measures will lead to a reduction in the ratio of public expenditure to GDP over the 2023-2024 biennium.
• Inflationary pressures on public wages, pension expenditure and interest expenditure will absorb part of the margin granted by the automatic stabilizers, and public expenditure will remain at levels similar to those reached after the previous financial crisis.
• The fiscal scenario presented in this report points to a slight reduction in public debt over the 2023-2024 biennium, to around 106% of GDP by the end of 2024.
• The beginning of 2023 suggests that the implementation of the Recovery Plan may be gaining traction, although the NGEU's traction effect may be weaker than expected.

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