Bank of Spain raises growth forecast to 1.9%, but rules out compliance with fiscal rules due to public spending slippage

spain foreign policy

In its latest projections – published yesterday – the Bank of Spain predicts a rise in GDP 2024 to 1.9%, three tenths above the last projection made in December, thanks to the drag effect generated by a better-than-expected end to 2023, but above all to the increase in public consumption.

The bank warns of the extraordinary increase in public consumption in 2023 to almost 4%, even higher than in 2020 and 2021, the years in which the outbreak of the pandemic required the greatest effort on the part of the State: “The high dynamism shown by public consumption was surprising; a vigour that would have led to this item increasing by 3.8% in 2023 as a whole, a rate higher than those observed in 2020 and 2021 during the period of greatest impact of the health crisis,” explains the document, which reveals that this upturn has contributed to an increase in total public spending of 7.5%, much higher than that recorded in the previous two years. This, they say, will put additional pressure on public accounts, at a time when European institutions are demanding an adjustment.

Added to this is the effect that the staggered extension of the anti-crisis measures decreed last December will have on the deficit target. Thus, the entity rules out Spain complying with Brussels, which demands that the figure should fall below 3%. The report calculates a deficit of 3.5% this year, a level that will not be lowered in the following two years; to achieve this, the institution points out, the government would have to cut spending by half. “It is not because of revenue, which is growing at high rates, but because of the dynamism of spending, increased by public consumption, by spending on benefits and more specifically by spending on pensions,” said Ángel Gavilán, Director General of Economics.

Moreover, the Bank of Spain believes that the weakness of private consumption and business investment will have a negative impact on the Spanish economy during the initial part of 2024.

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