Spain | Recovery without a structural reduction of the public deficit

The forecasts of the Stability Program point to a fairly strong recovery, with GDP growth above potential, but the public accounts suggest a cyclical improvement of the deficit rather than its structural component.

Key points

• Key points:
• Barely one year ago, the program for the 2021-2024 horizon foresaw the economic recovery would allow a path of fiscal adjustment to reduce the government deficit to 3.2% in 2024.
• Twelve months later, the reduction of the deficit basically remains in place, at 3.3% in 2024 and 3% in 2025, but with a scenario of lower economic growth.
• The first conclusion is that public expenditure is expected to stabilize at around 45.2% of GDP, more than 3 percentage points above its structural level prior to the pandemic.
• The second is that there are signs of the same increase in the tax burden and public expenditure. As a result, the structural deficit will be around 3.5%, a similar level to that before the COVID crisis.
• The third conclusion is that, if the forecasts prove correct, the expected structural improvement in the labor market, thanks to the European NGEU funds and the reforms underway, will be used to increase public expenditure permanently, rather than to reduce the structural deficit.

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