Airef improves its growth forecast for Spain to 2%, but believes that more adjustments will be needed to comply with Brussels

The Independent Authority of Fiscal Authority (Airef) has revised upwards its economic growth forecast for the Spanish economy in 2023. The watchdog of national public finances now believes that GDP will have advanced by around 2% by the end of this year, compared to 1.5% in its previous forecast. An upward revision that is added to the one announced on Wednesday by the Bank of Spain and that will be replicated, predictably, by the analysis houses that present forecasts in the coming weeks.

Airef's growth forecasts deviate slightly downwards from the Executive's expectation. Thus, while the Government expects the economy to advance by 2.1% this year and 2.4% the following year, the fiscal authority forecasts growth of 1.9 and 2% respectively. Government and Airef agree that economic growth will be 1.8% in 2025, while the Executive puts it at 1.7% in 2026 and the fiscal authority at 1.6%.

This was announced by the institution chaired by the economist Cristina Herrero, who presented this Thursday her evaluation of the 2023-2026 Stability Program that the Government recently sent to the European authorities. The Stability Program is a document that the Member States must present each year to Brussels with their deficit, debt and growth forecasts (among other variables) in the medium term.

The Airef has confirmed its endorsement of the Government Stability Program, which already advanced at the end of April, but has introduced important nuances. The fiscal authority sees both the growth scenario and the deficit and debt scenario proposed by the Government as “feasible”, but it fundamentally disagrees on the deficit path.

While the Executive expects that the imbalance between income and public spending will be reduced in the coming years until it falls to 2.5% of GDP in 2026, Airef believes that it will remain stable at 3% throughout that horizon. With regard to debt, the fiscal watchdog estimates that it will drop from the current 113% to 107% in 2026 thanks to the growth of the economy (it should be remembered that public debt is measured over GDP, so if the economy grows more than the liability, the ratio is reduced). However, in the long term they suggest that the ratio will rise if measures are not taken.

This stabilization in the deficit, argues the fiscal vigilante, “is insufficient to place the debt on a downward trajectory” that guarantees that the indebtedness is reduced gradually and sustainably. A requirement that is included in the proposal to reform the fiscal rules presented by the European Commission that is still being debated by the European authorities.

Adjust 30,000 million in four years

The tax authority believes that, if the reform of the European fiscal rules finally succeeds, “additional adjustment measures will be necessary to place the path of the debt on a downward trajectory in the coming years with sufficient plausibility”. An affirmation that clashes with the vision of the Government. Shortly before submitting the Stability Program, the Minister of Finance, María Jesús Montero, affirmed that the reduction of the deficit to 3% in 2023 was possible thanks to the evolution of the economy and the data on job creation. Thus, it would be possible to “accelerate the fiscal consolidation process”, but “without applying cut policies” and maintaining support measures.

How much would have to be adjusted to comply with Brussels? Airef calculates that a budget adjustment of 0.46 points of GDP over four years would be enough to reduce the debt from 113% of current GDP to 85% in 2037. An adjustment of these dimensions would make it possible to contain net primary spending at 30,000 million until 2027, estimates Airef. This variable reflects what public administrations spend without counting the payment of interest on the debt and discounting the measures of income. On the other hand, if the path of deficit foreseen by the Government (more optimistic) were fulfilled, the necessary adjustment would be somewhat less, of three tenths of GDP each year up to a total of 1.2 points in 2027. Which, in euros, implies around 19,600 million.