The International Monetary Fund (IMF) released this Wednesday its estimate of the public deficit for Spain in 2022, which it estimates will be 5.3% of gross domestic product (GDP).
In its report on fiscal surveillance published today, the financial body also forecasts that the deficit will be reduced to 4.3% of GDP in 2023 and to 3.9% in 2024. From that year, according to IMF estimates, the deficit would remain stagnant at 3.9% per year until 2027. The deficit figures calculated by the IMF are usually higher than those published by the Spanish government when including support for the financial sector in its calculation.
“When the pandemic struck, Spain, like other countries, responded with a very aggressive fiscal policy to help mitigate the impact,” Paulo Medas, division head of the IMF’s Fiscal Affairs Department, said in an interview with EFE. “That led to a significant deterioration in the fiscal deficit, from 11% in 2020. Now we are seeing a gradual reduction in that deficit,” he added. .
This gradual reduction in the deficit reflects, in the opinion of the Fund’s analysts, both the Spanish economic recovery and the progressive withdrawal of the exceptional fiscal measures decreed during the pandemic.
Regarding public debt, the Fund estimates that Spain closes 2022 with obligations that represent 116.4% of GDP; a figure that will fall to 115.9% in 2023 and from 2024 will remain stagnant for the next four years at around 114.6%. .
The stagnation of the deficit and the debt as of 2024 result from the assumption of the “passive scenario” that the Fund considers when making these estimates -that is, it makes the calculations as if nothing were to change with respect to the current fiscal situation- for the lack of specific and detailed plans in the medium and long term.
“The (Spanish) authorities have announced general commitments to reorganize the tax system and improve the efficiency of public spending, for example, but they have not specified how they are going to do it and, therefore, we do not reflect it in our projections,” Medas explained.
However, at the IMF they were not particularly concerned about a possible delay in the arrival of these measures and indicated that although Spain will have to undertake “gradual fiscal consolidation” in the future, the time to do so will be when the country’s economy is on a path of sustained growth.
“What we do advise the (Spanish) government is to present more specific medium-term plans to gain credibility and help build a social and national consensus, in addition to signaling to the markets that a plan exists,” the economist stressed.
Inflation moderation
The Spanish economy will continue to grow substantially above the euro zone in the coming years, which will allow the country to reduce the unemployment rate to the lowest level since 2008, although the levels of debt and deficit will continue to exceed those registered before the pandemic, according to projections, which anticipates a sharp downward correction of inflation towards the end of this year.
In this way, the international institution forecasts that the inflation rate for the Spanish economy, which shot up to 9.8% last March, reaching its highest level in 37 years, will moderate during the second half of 2022. which would make it possible to reduce the rise in prices to an average of 5.3% for the year as a whole and to 2.7% at the end of the year.
In this way, the longer-term projections of the IMF contemplate that the average inflation rate for Spain will fall to 1.3% in 2023 and rise by one tenth a year later, to 1.4%, rising to 1. 6% in 2024 and up to 1.7% on average each of the following two years.
The expected moderation of inflationary pressures and the momentum of the ongoing recovery, together with the injection of the expected European funds, will allow Spain to grow at a significantly higher rate than the euro zone throughout the horizon of the Fund’s forecasts.
Specifically, if for this year and the next the IMF anticipates a growth of the Spanish GDP of 4.8% and 3.3%, respectively, in the case of the euro area an expansion of 2.8% is expected this year and 2.3% in 2023.
Employment ‘return’ to 2008
In the longer term, the IMF forecasts that the Spanish economy will still grow by 3.1% in 2024, moderating the rate of expansion to 1.9% in 2025; to 1.7% in 2026 and 1.6% in 2027, while activity in the euro zone will increase by 1.8% in 2024 and 1.6% in 2025, moderating to 1.4% a year later and 1.3% in 2027.
The recovery of activity in Spain will allow a gradual reduction in unemployment, which would close this year at 13.4%, below the 14.1% prior to the pandemic, after which the IMF trusts that the unemployment rate will moderate to 13% next year and to 12.7% in 2024, to drop to 12.6% one year later and to 12.5% in the last two years of the forecast horizon.
In this way, the Fund anticipates that Spain will achieve this year for the first time since 2008 to exceed the threshold of 20 million employed persons, with a forecast of 20,263 million for 2022, compared to 19,779 in 2019, which next year will increase to 20,448 million.
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