The European Commission revises upward growth forecasts for Spain for this year, expects Spain to reach the 3% deficit target and improves prospects for debt reduction. The community executive up to 3% the estimated expansion of Gross Domestic Product (GDP) for this year, compared to the 2.1% forecast in its latest economic forecast published in May. Spain would thus become the economy experiencing the strongest growth among the main economies of the euro zone, mirroring the growth of Poland ahead of Germany, France and Italy.
Brussels estimates that Spanish GDP will increase by 3% this year, above the euro zone average will increase by 0.8% in 2024 and by 0.9% of the EU. Spain would position itself as the engine of growth of the single currency countries. Its behavior contrasts with the stagnation of German GDP, which will decline by 0.1% this year. France will record GDP growth of 1.1%, Italy of 0.7% and Greece of 2.1%.
Economic activity in Spain will experience strong growth in 2024, of 3%, to gradually decelerate in 2025, until 2.3%, and up to 2.1% in 2026, according to Brussels forecasts. Such dynamics respond to the dynamism of consumption, the resilience of the labor market and the strengthening of investment, particularly in 2025 and 2026.
The Community Executive, which did not update its economic forecasts this summer, is thus aligning itself with the latest estimates from international organizations. In October, the International Monetary Fund highlighted that Spain would be the fastest growing developed economy in 2024, 2.9%, exceeding the euro zone average by two points.
Will achieve the deficit target
Furthermore, Brussels estimates that Madrid will achieve this year the objective of reducing the deficit to the limit of 3%, in accordance with the objectives set by the budgetary rules. Achieving such a deficit objective would legitimize Brussels for having prevented Spain, last spring, from entering into an excessive deficit situation. What I had to look at at that time was the closing deficit data for 2023, which amounts to 3.6%. But the forecast that this figure would fall to 3% in 2024 allowed Spain to escape the sanctions case.
The good data concerning the deficit respond to “the gradual elimination of the planned measures to mitigate the impact of high energy prices“, analyzes the Community Executive. It will stabilize in 2026 “thanks to the slowdown in primary expenditure in a context of strong growth in tax revenue”.
In accordance with the message sent a few weeks ago by the economic vice-president of the European Commission, Valdis Dombrovskis, Brussels underlines that the crisis caused by the floods in Valencia could have an impact on the deficit, based on public spending intended to deal with the repercussions of Dana. In this sense, the Latvian commissioner has already warned that he will grant flexibility to Spain because this is an exceptional situation.
In a scenario of constant policies, the European Commission estimates that the public deficit will fall to 2.6% in 2025. However, the outlook is that in 2026 it will increase to 2.7%, a reasoning that Brussels supports the idea of eliminating taxes on banks and energy companies which were launched due to the pandemic. The government lacks support in Congress to be able to impose such definitive taxes. Neither ERC, nor Bildu nor Podemos, on the left, nor PNV or Junts on the right, show any desire to support the agreement.
Debt fall
The other good news for Spain comes from the debt side. Brussels predicts that the drop will be greater than expected, both by the European Commission last spring and by the government itself. Fall forecasts suggest that public debt will fall to 102.3% this year, then fall to 101.3% in 2025 and 101.1% in 2026. The figures contrast with the 105.5% of GDP estimated in the spring for this year, 104.8% in 2025 and 104.1% in 2026.
The Community Executive’s forecasts also improve the Government’s estimate. The Spanish structural budget plan that governments had to send to Brussels as part of the application of the new budgetary rules provides for a debt reduction of 102.5% for this year.
