The European Commission estimates Spain’s budget deficit will be 4.5% of gross domestic product in 2015 instead of the required 4.2%. The discrepancy will widen in 2016, with an estimated deficit then of 3.5% of GDP compared with the 2.8% target.
The three-tenths of a percentage point discrepancy with respect to the objective for this year and the seven-tenths of a percentage point for 2016 appear to be a subject of some controversy within the Ecofin: Germany does think Spain’s budgetary consolidation efforts are sufficient.
Analysts at AFI think the biggest discrepancy between Madrid and Brussels’ figures – as much as two percentage points – is based on the financial shortfall in the Social Security. The Commission believes Social Security revenues are biased on the upside, noting that the rise in revenues from social contributions registered until August was 1.4% versus the 6.8% increase budgeted for in 2015. As a result, the deviation from the 2015 deficit target will, in the end, be “moderate,” according to AFI.
Ahorro Corporacion analysts coincide with this view, forecasting “some degree of non-compliance, but less than expected.” One of the investment services firm’s experts, Antonio Zamora, says:
“It’s clear that the European Commission is very demanding, in line with what is established in its guidelines. Spain has a duty to minimally meet the agreed targets. As far as the markets are concerned, the consequences are insignificant. The important thing for them is that the Spanish economy is growing strongly and the deficit is decreasing. Not that the target may be missed in some degree.”
For AFI, “looking ahead to 2016, the key issue is the impact of slowing economic growth within a context of low inflation, as well as electoral uncertainty.”
Spain will hold general elections on December 20th.
While the Spanish government forecasts economic growth of 3.3% this year and 3.0% in 2016, the European Commission is predicting 2.8% in 2015 and 2.6% in 2016. For its part, the IMF believes Spain’s economy will expand 3.1% this year and 2.5% in 2016.