Spain | Fiscal Watch. July 2025

Summary

The fiscal deficit is expected to decline to 2.7% of GDP in 2025 and 2.5% in 2026. This outlook reflects a gradual and sustained adjustment in public finances, supported by solid economic growth. The consolidation occurs amid upward pressures on public spending, due to rising pension costs and increased defence expenditure.

Key points

• Key points:
• Stronger revenue growth than expenditure growth led to a slight fiscal adjustment in Q1 2025. The twelve-month cumulative deficit, excluding the DANA-related impact, would stand at 2.7% of GDP in Q1 2025. Fiscal execution through April suggests that the consolidation path initiated the previous month is being maintained.
• DANA-related aid and commitments to increased defence spending will continue to exert upward pressure on expenditure in 2025.
• La mejora cíclica de la actividad y el menor impacto de los gastos extraordinarios compensarán el incremento de las pensiones y del gasto en defensa. No obstante, será necesario definir nuevas medidas de entre 0,3 y 0,4 pp para cumplir con las reglas fiscales.
• Forecasts point to an average growth in net primary expenditure—adjusted for revenue-side measures—of around 3.7%, slightly above the committed path. The cyclically adjusted primary balance is expected to improve by 0.8 pp of GDP, reaching -1.1% in 2026.
• Execution of grants and public tenders under the Recovery, Transformation and Resilience Plan has reached 64% of planned investment. To achieve full implementation, the pace would need to accelerate by 23%, reaching €1.5 billion per month.

Geographies

Topics

Tags