Spain | A declining deficit, a looming bill

Summary

Spain is reducing its deficit and risk premium thanks to economic growth, even in the absence of an approved budget. However, net primary spending is rising above what was committed, and if the cycle cools, confidence could deteriorate.

Key points

• Key points:
• To the milestones being reached by Spain’s major economic aggregates, one must add the sharp reduction in the public deficit between 2019 and 2025.
• Data available through November suggest that the imbalance in public sector accounts fell to levels around 2.4% of GDP by the end of last year, according to BBVA Research.
• Part of what has changed—and what markets value—is the momentum of economic activity and the impact it is having on the government’s ability to reduce its imbalances.
• The certainty of having explicit fiscal consolidation measures, agreed upon in Parliament, has been replaced by confidence in an economy that continues to grow faster than its main peers and that is turning favorable cyclical conditions into improvements in public account imbalances.
• That said, the evolution of public finances conceals less favorable elements. Of particular concern is the increase in net primary spending, which is growing at around 4.5%, above the 3% average outlined in the Fiscal and Structural Plan presented by the government last year.

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