Spain | Fiscal watch 2Q21

The 2020 health crisis resulted in a large deficit of 10.1% of GDP and pushed public debt up to 120%. Going forward, fiscal policy will be conditioned by the suspension of fiscal rules and the arrival of Recovery funds, which suggests that it will remain expansionary.

Key points

• Key points:
• The 2020 year-end surprised with a public deficit of 10.1% of GDP below that expected three months ago by both the Government and BBVA Research.
• The positive surprise was mainly due to tax revenues, which showed greater strength than expected, favored by measures to support employment and household income.
• For the 2021 and 2022 biennium, the cyclical recovery of activity and the reversal of some of the temporary measures approved in 2020 are expected to favor a reduction in the deficit to 8.5% of GDP in 2021 and 5.0% by the end of 2022.
• Although doubts remain about its implementation, the Recovery and Resilience Plan recently approved by the Government foresees mobilizing 6pp of GDP between 2021 and 2023, and its objectives are consistent with the European Commission's investment proposals.

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