“Not only with the better data that we are getting to know, but also in light of the revision of the stunting, we are also going to update our forecasts,” Economy Minister Carlos Body said in a television interview last year. Thursday. The third major correction of the National Accounts by the INE has once again improved the picture of the Spanish economy — and it will be even more positive because the numbers still do not add up, as this analysis explains. “We have been living in a fictional narrative for three years: growth, productivity and deficit and debt ratios were/are better than estimated, budgetary pressure is lower, the exit from COVID is faster…”, summarizes economist Daniel Fuentes. “This should not happen. There were well-founded indications,” he laments.
The deficit (the imbalance between government income and expenditure), public debt, pension spending, budgetary pressure or productivity are crucial data and are always measured in relation to the GDP (Gross Domestic Product), the main indicator that offers a snapshot of economic activity as a whole, with all its flaws and virtues. These ratios mark the debates and decisions on government policies and measures.
For example, the deficit level is used to know whether governments can spend more on public health or education without violating the European Union (EU) rules reactivated this year. In other words, whether they can improve basic services without losing their sovereignty. Labor productivity, on the other hand, is used to predict whether a new increase in the minimum interprofessional wage (SMI) or the reduction of the official working day will harm future growth or not. Or, on the other hand, the tax burden shows how much less taxes are collected than in other countries around us that we want to resemble in terms of well-being.
In short, a GDP calculation error is not just a technical problem. Since the end of 2021, experts and journalists from elDiario.es have been warning that the GDP has been underestimated – observing discrepancies in job creation or growth in tax collection – and that, as a result, important ratios have been distorted. In a context of undeniable exception due to the pandemic, the INE has only remedied this little by little, and with scant explanations. “It would have been better not to have to correct. The errors of underestimation of the GDP have been known since the pandemic. In any case, the correction is welcome. It was necessary,” says Nacho Álvarez, professor at the UCM and former Secretary of State for Social Rights in the first coalition government.
What are the concrete consequences of the historical revision of the INE? There are still data to be known, such as the update of the quarterly series of the National Accounting that Statistics will publish at the end of this month or the final figures of tax collection in 2023 that the Treasury must declare, but some relevant changes can already be approached in the photograph of the economy of Spain.
The end of the pandemic and politics
A first problem arising from the underestimation of GDP is the conditioning of election campaigns. The right attacked the coalition government with miscalculated national accounts that put us at the “back of the pack” of the recovery from the pandemic in the eurozone. We now know that since 2019, there has been a total shortfall of €130 billion in nominal GDP, at current prices (without taking inflation into account), and that real GDP growth (adjusted prices) compared to the pre-pandemic level has been much higher… than the first estimates.
77 billion were suddenly added to nominal GDP between 2021 and 2023 in the latest INE review last Wednesday. In the absence of new corrections, at the end of 2023, Spanish GDP exceeded the pre-pandemic level by 3.6 points, from which it recovered in 2022.
Not only has Spain not been the last to get into the recovery, but it is now leading the growth of the Eurozone’s GDP and is reducing the growth gap with Germany, which had opened up after the great financial crisis, after the bursting of the real estate bubble. This same week, the Bank of Spain improved its projection for the increase in our country’s GDP by half a point for 2024, from 2.3% to 2.8%. In 2025, the increase in the growth estimate was three tenths, up to 2.2%. In 2026, by two tenths to 1.9%.
The majority of analysis houses that publish forecasts on the economy have followed this same path in recent weeks, as Corps announced that the government would do so soon, from the current 2.4% for 2024.
Public deficit and debt
When presenting its forecasts, the Bank of Spain questioned whether our country could meet the commitment made to the European Commission to maintain the deficit at 3% of GDP. This objective has prevented Spain from entering the process of “excessive deficit” provided for by the new EU budgetary rules and which would imply community control and intervention in national economic decisions.
The doubts of the Bank of Spain, which has set its estimate of the deficit in 2024 at 3.3%, collide with the new GDP correction of the INE, which raises the level and automatically implies a reduction in the budgetary imbalance ratio, as happens if we look at the evolution in reverse.
Even if reducing a few tenths may not seem like much, two things must be taken into account. The first is that a tenth up or down can mean compliance or non-compliance with European limits. The second is that the deficit is financed by public debt, the sustainability of which is what the EU’s fiscal corset is ultimately aimed at.
The first indicator on debt is once again its ratio to GDP, which ended 2020 close to 120% and which in 2023 had already fallen to 105%. The final objective is to recover fiscal space. That is, to have room for maneuver in public spending to be able to respond to a new crisis with measures to finance the ERTE that protected workers and businesses at the height of the pandemic or to pay for the reduction of 20 cents per liter of gasoline. the most suffocating months of the inflation hit.
Another story
Another serious consequence of the INE’s errors has been the story of tax pressure or lack of business investment. With the updated data from the national accounts, the ratio of taxes collected in Spain to GDP has been reduced by one percentage point, from 38.7% to 37.7%. “It’s not bad to drop 1% of GDP at once,” says Miguel Artola, the expert who, together with Francisco Melis, began to warn in 2021 about the underestimation that the INE was making of the progress of our economy.
“Not bad” because in recent years, right-wing and neoliberal voices have insisted that Spain is a “fiscal hell”, although we have never exceeded the levels of pressure of countries with more developed welfare states. But above all because a profound tax reform is underway, with which all experts and institutions agree, and which will require the most precise figures possible in its design.
Another mantra of the recovery has been weak business investment. The GDP review indicates that growth since 2020 has been “more sustainable and balanced, given that all components are above the pre-pandemic level,” explains the Ministry of Economy. In other words, the advance of activity has not relied dangerously on a single sector such as tourism (collected in foreign demand).
Productivity
Furthermore, the latest correction of the National Accounts added the creation of 156,000 jobs since 2018.
This increase in employed people is responsible for 0.7 points of the 1.1 points that the INE has examined increases in real GDP growth in total from 2020 to 2023. The rest of the advance is explained by an improvement in labor productivity. “Either because the most productive activities have increased or because workers are simply more efficient,” explains Miguel Artola.
Improving productivity is essential because economic theory says that future growth depends on it and because its stagnation has been the main argument of companies, the right and neoliberal voices to position themselves against the reduction of official working hours or against further increases in the SMI, despite the structural changes observed in the labor market, with the creation of less precarious jobs and in sectors linked to professional services (e.g. consulting), IT or communication, and with the growth of non-tourism service exports.
