The Government maintains its forecast for GDP at 2.1% in 2023 and estimates a rise of 2.4% in 2024

It foresees the creation of 1.1 million jobs between 2023 and 2026, reducing the unemployment rate to below 10% in 2026

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The Government has maintained its growth forecast for the Spanish Gross Domestic Product at 2.1% this year and estimates an advance of the economy of 2.4% in 2024, despite the international context marked by the rapid tightening of monetary policies , episodes of financial stress and uncertainty at the geopolitical and energy level.

The Spanish Executive has submitted to the European Commission the Stability Program and the National Reform Plan with the macroeconomic and fiscal perspectives for the period 2023-2026, which includes a “prudent” scenario, as defended by the Government, which has been endorsed by the Independent Authority for Fiscal Responsibility (AIReF).

Despite the international context, the Government assures that in 2023 Spain will lead growth for the third consecutive year among the main countries of the euro area, driven by the dynamism of employment, domestic demand, investment and the growth of exports. In addition, the Recovery Plan will provide half of the growth in 2023 and will soften the impact that the monetary ‘shock’ will have on other European countries.

The forecasts for the Government’s GDP this year remain above the estimates of national and international organizations. For example, the Bank of Spain and the Independent Authority for Fiscal Responsibility (AIReF) foresee growth in 2023 of 1.6%, while that the International Monetary Fund (IMF) places it at 1.5%.

All in all, the new macroeconomic framework foresees that domestic demand will be the main driver of growth this year, and especially private consumption, with an estimated growth forecast of 2.1%, sustained mainly by the evolution of employment.

Under the assumptions of interest rate increases in the central scenario, the Government assures that there are several factors that will limit the potential impact of the recent rate increases on economic growth in 2023 and 2024. According to the Executive, the intense reduction in the levels of net debt of Spanish households and companies mitigates the effect of the income reduction channel, compared to previous episodes of monetary tightening. In addition, excess liquidity in the balance sheets of companies and households limits the substitution effect of consumption and investment by savings.

THE UNEMPLOYMENT RATE WILL LOWER THAN 10% IN 2026

For the period 2023-2026, the consolidation of job creation will continue to be the engine of economic growth, which will add 1.1 million more employed persons until 2026, in addition to the million created after the pandemic and which will allow record levels of employment to be reached .

Likewise, the downward path of the unemployment rate is maintained, which will go from 12.9% in 2022, to 12.2% in 2023, to 10.9% in 2024, to 10.3% in 2025 and will be reduced finally below 10% in 2026, accompanied by an increase in the active population and an improvement in the quality of employment.

The foreign sector will maintain a slightly positive contribution during the forecast period. After the good performance in 2022 of exports of goods, which grew by 14.4%, the increase will moderate to 1.5% in 2023, to which a positive evolution of the tourism sector will be added.

In addition, in an environment where inflation gradually returns to its medium-term level, the buoyancy of exports will maintain the current account surplus and will allow the net international investment position to continue improving.

PUBLIC DEFICIT OF 3% AND DEBT BELOW 110% IN 2024

The Stability Program also includes the fiscal perspectives for the period 2023-2026. The public deficit will be reduced to 3% in 2024, one year ahead of schedule, in compliance with the stability pact. In any case, the deficit reduction path for the public administrations as a whole will be 3.9% in 2023, 3% in 2024, 2.7% in 2025 and 2.5% in 2026. With this path, a primary surplus is already reached in the year 2025, they say from the Treasury.

In addition, these projections show good results in terms of the primary deficit: excluding interest, the deficit is reduced to 0.4% next year and the projection horizon closes with a primary surplus of 0.4%.

The reduction in the public deficit in the new fiscal path is mainly due to solid economic growth and the positive evolution of employment, which currently stands at record registration figures.

In addition, the forecast is that income from the fight against fraud, the emergence of the underground economy and taxes will increase in the coming years above inflation forecasts, which shows once again that the improvement in public resources is sustained due to the boost in the economy and the dynamism of employment.

On its side, the debt will maintain its path of reduction after the decrease of five points last year to absorb the impact of the pandemic as soon as possible, reaching 111.9% of GDP in 2023 and already falling below 110% (109 .1%) in 2024, one year ahead of schedule. In 2025, the forecast is for it to fall to 107.9% and in 2026 to 106.8%.

THE GDP DEFLATOR WILL FALL BEHIND 2% IN 2026

The measures adopted, and in particular the ‘Iberian solution’, have placed inflation in Spain among the lowest in the European Union, which has improved business competitiveness, which is reflected in gains in market share for exports.

For the period 2023-2026, the Executive estimates that the GDP deflator will go from 4% in 2023, to 3.5 in 2024, to 2.1% in 2025 and finally fall to 1.9% in 2026.

MORE TAX MARGIN FOR COMMUNITIES AND MUNICIPALITIES

If the deficit forecast by subsector is analyzed, the Central Administration will close 2023 with a lag of 3.1%, compared to the 3.4% forecast in the previous Stability Program. At the end of the series, the deficit for this subsector will stand at 2.8%.

For their part, the autonomous communities have a deficit target of 0.3% in 2023, which means more flexibility with respect to the forecast of 0.1% of the previous Stability Programme. In addition, compared to the surplus of 0.2% forecast for 2024 in the previous Stability Program, a budget balance target of 0% is now indicated.

For their part, the Local Entities will return to budget balance in 2023 after having registered a slight short-term deficit in 2022 due to technical reasons when calculating the State compensation for the negative liquidation of 2020.

In this way, next year the objective of the local corporations will be 0%, compared to the surplus of 0.2% foreseen in the previous path. Therefore, once again, their forecasts are made more flexible to give this subsector more room.

Lastly, the Social Security Funds maintain their objective of closing 2023 with a deficit of 0.5% and will gradually reduce this gap until achieving budget balance in 2026.