The National Institute of Statistics (INE) has carried out the third review of the GDP to verify that the Spanish economy recovered earlier and more strongly from the Covid-19 pandemic. Their new calculations, which are based on a greater increase in consumption and external demand than previously estimated, place growth at 6.4% in 2021 and 5.8% in 2022, almost one point and three tenths above their previous estimate, respectively. This upward revision has far-reaching consequences for the necessary process of fiscal consolidation, just a few months before Brussels once again forces countries to adhere to deficit and debt limits.
By increasing the nominal GDP by 20,000 million euros, the debt ratio falls by an additional 1.6 points, so Spain will be able to bring forward to this year the objective of placing its public debt below 110% of GDP. Despite the improved calculations, the country will continue to have to carry out an adjustment of just over 10,000 million euros next year to be able to adhere to the fiscal rules with the more than foreseeable extension of the General State Budgets for political paralysis and the delay in the formation of a new Government.
If the deficit remains at around 4% of GDP next year, from the 4.7% it had dropped last year, and the GDP slows down and grows at 1.5 or 2%, “we would be talking about approximately one point of GDP” (those just over 10,000 million euros), Miguel Cardoso explains to ‘La Información’. The chief economist for Spain at BBVA Research understands that with the revision of 1.7 points of nominal GDP in the accumulated of the last three years, debt would be reduced by 1.7 points and the deficit by six tenths. However, this revision does not change the fact that public debt will end the year above 110% of GDP and that the deficit will end one percentage point above 3%.
Therefore, Cardoso considers it “very possible” that the new fiscal rules will imply an ambitious consolidation next year, especially “if growth slows, as expected.” The expert points out another important aspect to take into account: the upward revision of GDP confirms that part of the increase that has occurred in collection, which could be attributed to a structural change, is actually a consequence of economic activity. “Therefore, if the economy weakens next year, public revenue may fall more than could have been inferred before this review,” he adds.
The extension of budgets and control of public spending
Of all the changes published by the INE, what has caught the attention of economist Javier Santacruz the most is the revision of nominal GDP, since it represents the recognition of a GDP deflator very far from the evolution of the CPI and the other indicators of prices that exist in the economy. “It will be easier than thought to achieve the objective of 3% deficit,” he maintains, while pointing out that with extended public accounts the Executive (the one that remains in office or the next one) ensures that in terms strict public deficit there is not going to be “too much craziness” with spending.
This would also be the case for the rest of the Administrations, since since the acting Executive has not provided them with a spending ceiling or limit for 2024, it seems logical that they would have tended to increase disbursements less when preparing their own accounts, given that they did not They may incorporate new spending commitments. This would also contribute to maintaining the necessary fiscal consolidation path. Santacruz considers that, most likely, the Central Executive will carry out the spending through expansions of budget credits, thereby increasing the debt. In any case, “it will be beneficial for the Government,” he says.
The review by the INE of the National Accounting figures has been made public just a few hours before the Bank of Spain (BdE) updates its economic forecasts for Spain. The organization placed the GDP growth at 2.3% this year, in line with the calculations that the Government, now in office, had foreseen. Last week, the European Commission placed the advance at 2.2%, although it warned that the cooling of the Spanish economy, which is already evident in the second half of the year, could last at least until June of next year.