Spain | Fiscal watch 1Q21

Summary

The expenditure growth stabilization and the strength shown by taxes, lead to lower the deficit forecast for 2020 to 11.5% of GDP. The Recovery funds represent an opportunity to favor fiscal adjustment and resume the downward path of public debt.

Key points

• Key points:
• Budget execution data point to a lower impact of the pandemic on the public deficit than expected three months ago.
• A slow recovery of public revenues is confirmed, while spending is expected to have maintained its unprecedented growth. This leads to a revision of the 2020 deficit forecast to 11.5% of GDP.
• For the 2021 and 2022 biennium, the cyclical recovery of activity and, to a lesser extent, the temporary nature of many of the measures approved are expected to favor a reduction in the deficit to 8.9% of GDP in 2021 and 5.6% by the end of 2022.
• The timely approval of the PGE 2021 is good news, as it provides certainty to the fiscal environment, although the accompanying measures - tax, wage and pension increases - do not seem appropriate with activity yet to recover.
• A significant increase in public debt is expected, which will reach over 116% of GDP by the end of 2022.

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