The Independent Financial Responsibility Authority (AIReF) kept its growth forecast for Spain’s Gross Domestic Product (GDP) this year at 1.6%. Increases public deficit forecasts for 2023 by nine tenths up to 4.2% of GDP as a result of the impact of measures to alleviate the energy crisis.
This is stated in the Report Public Administrations Initial Budgets 2023The independent body, headed by Cristina Herrero, has updated its macroeconomic and financial forecasts, which include the impact of measures recently approved or expanded by the Government to deal with the economic consequences of the war in Ukraine and the rise in prices.
AIReF presented a new macroeconomic scenario in which it maintains its real GDP growth forecast for 2023. 1.6% compared to 5.5% observed in 2022 and determined nominal growth of 6.5% compared to 10% last year.
Esther Gordo, head of the Economic Analysis Division, announced at a press conference to present this new report that economic activity in Spain is looking good. “more strong” compared to what is expected in the fall. This is due, among other factors, to the positive behavior of the labor market in Spain and the foreign sector, as well as the moderation in prices of energy raw materials in international markets.
In fact, indicators in the first quarter of 2023 show more dynamism in economic activity overall. The MIPred model, prepared by AIReF and synthesizing the evolution of indicators closely related to economic activity, GDP growth 0.7% in the first quarter of 2023.
However, the institution warned of tightening financing conditions after the increase in interest rates, which is expected to affect the real economy in the second half of the year. This contrast in the evolution of the economy causes AIReF to maintain its position. economic growth forecasts at 1.6%.
underlying, above the general
In terms of prices, AIReF forecasts a 4% change in the Consumer Price Index (CPI) in 2023, two-tenths below its previous forecast, while forecasting core inflation to be around 5.4% and 4.8%. GDP deflator.
as described ester oilenergy products exhibit negative exchange rates, but inflation rates remain high. food, industrial goods and services reflecting a gradual transformation of past cost increases.
Wages, for their part, maintain moderate rates, but will grow above inflation in 2023 on average and only partially recover, according to the organization. The purchasing power lost the previous year.
AIReF on the unemployment rate increased its forecast from 12.6% to 12.7%while predicting that the wages of employees will increase by 4.7%, 1.1 points below the previous forecast.
14,000 million anti-crisis measures
Regarding the fiscal scenario, AIReF estimates a public administration deficit of 4.2% of GDP in 2023; this is three-tenths above the reference rate (3.9%) set by the Executive for the year as a whole. This review also raises the budget deficit forecast by nine-tenths of GDP compared to the October AIReF report, which did not consider expansion, and new measures approved to mitigate the effects of the energy crisis.
The agency estimates that all new measures and measures extended this year to alleviate the energy crisis and rising prices will be costly. 14,000 million euros.
In 2023, revenue will increase 6.4% to 42.5% of GDP and 44%, including revenue from the Recovery Plan. This level will be 1 percentage point lower GDP than the forecast in the previous report.. On the other hand, expenses without including the Plan will be 46.7% in 2023, compared to 46.8% projected in the previous report. Including the plan, the expenditure will be 48.3% of GDP.
Autonomies with higher deficit than specified
The worsening of the deficit is shared between the parties Central Government, Autonomous Communities and Local Companies. As far as the Central Government is concerned, AIReF projects a deficit of 3.5% of GDP in 2023, representing a 0.5 percentage point increase over the previous estimate.
The factor with the greatest weight is the approval of new measures and partial extension of existing ones. On the contrary, changes in the macroeconomic scenario and especially new information on tax collection reduce the gap by 0.3 percentage points.
In addition, AIReF increases the deficit of autonomous communities by two-tenths to 0.3% of GDP and reduces the surplus of local companies by three-tenths, which will end the year with a surplus of 0.2% of GDP. The worsening of the balance of these organizations is mainly due to a further increase in spending in 2022. Consolidates an initial level for 2023.
According to Ignacio Fernández-Huertas, director of the Budget Analysis Division, only four autonomous regions will close 2023 with a deficit of more than 0.3% —Catalonia, the Community of Valencia, the Region of Murcia and Castilla-La Mancha–.
On its part, five communities will close the year close to the reference rate of 0.3% —Extremadura, Madrid, La Rioja, Aragon and Cantabria–, the rest will get balance or redundancy. Next Thursday, April 13, individual reports of the communities will be published.
The Independent Accountability Agency, for its part, reduces the estimated deficit of the Social Security Funds by a tenth, Up to 0.6% of GDP.
Regarding debt, AIReF projects 2.6 percentage point decrease in GDP ratio in 2023up to 110.6% of GDP at the end of the year, but after some initial stability, a negative development is expected in the medium term.
Debt forecast rose to 110.6%
After finishing 2022 at 113.2% of GDP, AIReF’s macro-financial forecasts project a 2.6 percentage point decrease in debt-to-GDP ratio in 2023, which stands at 110.6% at year-end. or place it. According to AIReF, debt reached a record 125.7% in the first quarter of 2021 and has since been descending path will continue this year.
AIReF’s estimate improves the estimate presented by the Government in its draft 2023 Budget Plan by 112.4%. The latest estimates of the IMF and the European Commission.
“The predictable increase in pension, health and long-term care expenditures as a result of the aging of the population, the rapid and intense contraction of financing conditions, the new monetary cycle and the height of existing debt” sensitive situation“, the agency warned.