Spain | Fiscal Watch 3Q22

Sound budget execution data introduce positive biases on the deficit forecast in 2022, while the slowdown in activity in 2023 will dampen the cyclical recovery of the government balance. Deficit projections are revised to 5.5% of GDP in 2022 and 5.4% in 2023.

Key points

• Key points:
• The resilience of tax revenues would offset the lower growth expected for the 2022-2023 biennium. On the expenditure side, the fading of COVID measures and still robust growth will offset the cost of measures to alleviate the energy crisis.
• The acceleration of the Recovery Plan and the measures adopted to mitigate the effects of the war in Ukraine anticipate that fiscal policy will remain expansionary during 2022 and 2023.
• As a result of the persistent deficit, public debt will remain high at around 116% during 2022 and 2023, albeit at sustainable levels despite the rising cost of debt.
• The increase in the cost of financing and the impact of inflation on pensions may deteriorate the perception of the sustainability of public finances, which, in the absence of additional measures, could trigger a new liquidity crisis.

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