Airef lowers its growth forecast for 2024 to 1.7% and advises a fiscal adjustment of 9.5 billion to comply with the EU

Airef estimates that the Spanish economy will grow by 1.7% next year. An advance in GDP that would place Spain for the third consecutive year among the advanced economies with the best results, but which remains below the Government's predictions, which raises that figure to 2%. This was announced this Thursday by the Fiscal Authority, the independent body in charge of monitoring Spanish public finances.

Given the imminent return of European fiscal discipline in 2024, Airef urges the Executive to prepare a budget adjustment to guarantee that public debt is reduced in the coming years. Specifically, the independent fiscal watchdog proposes an annual adjustment of 0.64 points of GDP (9,500 million euros per year and 39,000 million in the entire period) between 2025 and 2028. In this way, Spain could reduce its public debt below 80% of GDP in the 1940s.

The fiscal watchdog has presented its report on the Fundamental Lines of the Budgets of Public Administrations, in which it analyzes the budget projects of all the administrations of the country. On this occasion, the document is somewhat decaffeinated as the General State Budget project has not been presented because the Government is in office.. A context of institutional uncertainty, which is also added to the economic clouds in the eurozone and the absence of a clear framework of European fiscal rules, the reform of which has not yet been fully defined.

Regarding economic growth, Airef points out that Spain has resisted better than most European countries in 2022 and 2023 as it has been less exposed to problems in global supply chains, the energy crisis and the weakening of China. For the current year, the Tax Authority expects GDP growth of 2.3%, one of the highest in the eurozone.

However, the country will find it difficult to escape the slowdown that is occurring in Europe. A weakness that is already noticeable in the second half of the year. The fiscal authority believes that in the third quarter the GDP will advance by just 0.1%, while in the fourth it will increase by 0.2%. Data that outlines a situation of stagnation, which in principle should ease in 2024.

Next year, the effect of the strong interest rate increases by the European Central Bank (ECB), the lower confidence of companies and households and the weakness of the eurozone will weigh on growth. However, the 1.7% that Airef predicts in 2024 would be enough for Spain to once again be one of the European economies that grows the most next year.

With these figures in hand, the Tax Authority endorsed the macroeconomic scenario presented by the Government on October 16, in which an economic growth of 2% is expected in 2024.. However, the Tax Authority warns that some of the Government's approaches may lack a certain optimism.. Especially with regard to the growth of consumption and investment, which Airef sees as more moderate due to the impact that high official interest rates will have on households and companies still in 2024.

Regarding inflation, Airef expects that 2023 will close with a rise in consumer prices of 3.9%, which will remain practically unchanged next year (4%).. The reduction in inflation, they point out, is mainly supported by its most volatile components, while the underlying index shows some persistence.

Anti-crisis measures are incompatible with the deficit

The Tax Authority sees the Government's objective of reducing the public deficit to 3% of GDP next year as viable, which would allow Spain to comply with European fiscal rules that will be back in force after four years of suspension. However, they warn that the Executive's goal can only be met if each and every one of the anti-crisis energy support measures that expire in December of this year are withdrawn.. In addition, territorial administrations (autonomies and city councils) would have to do their part and limit the increase in spending. Airef's calculations do not leave any room for the Executive to further increase spending compared to what was proposed in the Budget Plan if it wants to comply with Brussels' recommendations.

Regarding public debt, the Fiscal Authority believes that it will be reduced to 105% of GDP in 2024. A figure still above the levels prior to the coronavirus crisis and incompatible with the maximum threshold of 60% required by the European Union.. Airef warns that, in the absence of adjustments, the debt ratio would rise again starting in 2028.