Spain | Fiscal Watch. December 2024

The budget execution in the third quarter increases the likelihood of reducing the public deficit by half a percentage point of GDP in 2024 to 3.0%. Fiscal adjustment in 2025 and 2026 will depend on the implementation of the new fiscal rules and the effectiveness of tax measures.

Key points

• Key points:
• The public deficit, excluding local governments, stood at 1.6% of GDP in September 2024, reducing the 12-month accumulated balance to -3.4% of GDP. Tax revenue gained momentum, while the increase in public spending persisted.
• The expected adjustment in 2024 is explained by an improvement in economic activity and the gradual withdrawal of measures adopted to mitigate the effects of rising prices.
• A 7-year adjustment plan will require an annual average reduction of the cyclically adjusted primary balance by 0.4 percentage points of GDP. Of this adjustment, three-tenths will come from increased revenues generated by the tax measures approved last November.
• Under a scenario of compliance with fiscal rules, the public deficit would decrease to 2.7% and 2.4% of GDP in 2025 and 2026, respectively, supporting a downward trend in public debt, which would reach approximately 100% of GDP by 2026.
• The Autonomous Communities have leveraged the dynamism of their revenues to sustain high levels of spending. Nevertheless, a correction in the regional imbalance is expected, reducing it to -0.3% of GDP in 2024.

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