Spain | Fiscal Watch 3Q21

Summary

Good budgetary implementation data introduce positive biases on the deficit scenario, and the forecast is revised to 7.0% of GDP in 2021 and 5.0% in 2022. The expected impact of the Recovery Plan in 2021 is downgraded and carried forward to the following years.

Key points

• Key points:
• Spanish public deficit, excluding Local Governments, stood at 4.5% of GDP in Aug-21, an improvement on that observed in Aug-20, mainly due to a lower impact of the pandemic.
• Tax collection continues to develop favorably in the first eight months of the year. However, the recovery in public revenues is expected to ease, in line with the expected moderation in activity growth in the 2021-2022 biennium.
• Without containment measures, public expenditures will remain high. The increase in public consumption and investment would absorb the space freed up by the reduction in the cost of COVID-19.
• Under an outdated macroeconomic framework, the forecasts presented by the Spanish Government in the Draft Budgetary Plan for 2022 and in the PGE 2022 are optimistic.
• The reform agenda is underway, but important reforms such as the labour market and the pension system are still pending for this biennium. Reaching these milestones will determine the next disbursements linked to the Recovery Plan.

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