Published on Monday, February 1, 2021

Spain | Public deficit, permanent or temporary?

The deficit the crisis has left in public accounts probably reached 11.5% of the GDP in 2020. Moreover, in the short term, the imbalance in public accounts may have to go back to historically high levels again in 2021 in order to sustain activity.

Key points

  • Key points:
  • Although an expansionary fiscal policy seems the most appropriate right now-and a significant amount of this deficit will disappear with time as the economy recovers-there is fear that some of the deficit will become structural or will lead to a greater tax burden in the future.
  • In any case, unlike the 2009 crisis, this time the response has been more focused, with an emphasis on protecting jobs, and above all, it is designed to be temporary.
  • This year, both domestic and external demand are suffering and it is not beyond the realms of possibility that there will be stagnation or even a decline in GDP in the first quarter of 2021.
  • However, the structural deficit (the one that is not related to the economic cycle and which still exists in a 'normal' environment) would now be around 6% of the GDP. Furthermore, public spending will continue to be around 50% of the GDP, which is 8 percentage points higher than the level it was at in 2019.
  • Once the public health problem is resolved, the priority should be to develop a medium-term fiscal consolidation plan that minimizes the impact on activity and that is based on reforms that boost economic growth.

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