Spain | The challenges left by the European Semester

Spain has managed to stay out of the Excessive Deficit Procedure and has no significant economic imbalances, according to the recent European Semester assessment. However, the Commission still identifies important challenges regarding fiscal consolidation and improving future economic performance for sustained growth.

Key points

• Key points:
• In recent years, Spain has shown remarkable economic resilience. According to BBVA Research forecasts, GDP will grow by 2.5% in 2024, as in 2023, and above 2% in 2025, despite a challenging global economic environment and the weakness of its main European partners.
• This recovery has been driven by services exports and a robust labor market, with a very strong migratory flow and significant job creation. This year, the public deficit is expected to fall below 3% of GDP in an inertial scenario. Despite this, public debt remains high, at 109% of GDP in the first quarter of 2024.
• Spain needs an equivalent fiscal adjustment of at least 2.5 GDP points of the primary budget balance throughout 4 to 7 years. BBVA Research estimates indicate that, for each point of adjustment, GDP could be reduced in the long term by between 0.6 and 1.0 percentage points with respect to the baseline scenario without fiscal consolidation.
• The European Commission also highlights areas that have been well known for years and still require improvement. Capital investment (productive, real estate, and human) and R&D remain low compared to other EU countries.
• The European Semester recommends promoting a business environment that favors competitiveness and improving educational outcomes and skills development, especially in digital technologies and environmental sustainability.

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