First the Bank of Spain and now the Independent Accountability Authority, AIReF has revised its growth outlook for the economy to 2.3 percent for 2023, halving the pace to a more modest level. This forecast aligns closely with the Bank of Spain, which in mid-June published a 2.3 percent estimate, just above the government’s official 2.1 percent projection.
AIReF released the mandatory Report on budget implementation, public debt and the public administrations spending rule for 2023 this Thursday, updating its macroeconomic perspectives. Alongside raising the 2023 growth forecast to 2.3 percent from 1.9 percent in the spring, the Ministry of Finance trimmed inflation to 3.7 percent. AIReF maintains a projected public deficit of 4.1 percent of GDP for all administrations by year-end 2023, which sits two tenths above the government reference rate. [Attribution: AIReF budget and macroeconomic outlook 2023]
2023: from more to less
The report released this Thursday notes the higher 2023 growth figure stems from an upward revision of figures published by the National Institute of Statistics for late 2022 and the early part of this year. Yet the Tax Office anticipates a growth path that trends downward through 2023. [Attribution: INE revisions and AIReF analysis]
Based on information available for the second quarter, AIReF reports real growth at a rate slightly below the initial figure yet still at 0.6 percent, which remains higher than the euro area average. The Spanish economy has managed the energy crisis better than the euro area over the last three quarters. Still, a slowdown is expected in the second half of the year as rate hikes take full effect in the second half of 2023 and into 2024 on the real economy.
On the same Thursday, ESADE business school released its Economic and Financial Report for the second quarter of 2023. Signs point to a weakening Spanish economy in the second half of the year, driven mainly by reduced household consumption. As a result, EsadeEcPol projects growth for the year in a range of 1.9 percent to 2.1 percent, slightly below the 2.3 percent figure cited by Bank of Spain and AIReF. [Attribution: ESADE Economic and Financial Report 2023]
Deficit and debt
The projection shows a 4.1 percent of GDP deficit for 2023, two tenths above the government estimate, and a fall from 4.8 percent in 2022. AIReF attributes the budgetary impact of measures to mitigate energy and inflation pressures to 1.1 percentage points of GDP in 2023, about three tenths less than in 2022. These measures include electricity and food VAT reductions, a special electricity tax, sectoral support, and fuel relief. [Attribution: AIReF 2023 deficit analysis]
The expected debt level is seen falling by about 3.1 percentage points from the 2022 level, reaching 110.1 percent of GDP by the end of 2023. This correction, roughly 12.9 points, would represent half of the pandemic-driven debt increase. The improvement is expected to come mainly from nominal GDP growth, with a strong contribution from the GDP deflator. [Attribution: AIReF debt outlook 2023]
As the 2024 Budgets are prepared, and given that a general election interrupted standard procedures for setting the spending rule for autonomous communities and municipalities, AIReF warns that the European Budget framework will re-enter the process next year. It also calls on the Ministry of Finance to propose expenditure growth rates for autonomous regions and municipalities in line with recommendations issued to Spain by the Council of the European Union. [Attribution: AIReF 2023–2024 budget guidance]