As the year concluded, Spain’s GDP demonstrated a robust 0.6% growth, a stark contrast to the European sluggishness, affirming the positive trajectory amid a challenging global environment. This momentum continues into the current year, evident in Social Security affiliations and qualitative surveys reflecting consumer and business confidence.
Data released by the INE this week underscores the significant impact of fiscal policy. Nearly half of the growth recorded in the latter part of 2023 can be directly attributed to public sector consumption, unlike other European countries where the contribution of public consumption has been negligible. However, despite the economic boost, the budget deficit has barely diminished, according to available data until November.
This trajectory may not be sustainable, primarily due to the reactivation of European fiscal rules and the increased financial burden associated with high public debt in a context of elevated interest rates. The situation of a budgetary extension, perhaps for an extended period, also alters the dynamics. While this extension does not apply to interest payments, pensions, or (likely) public salaries, other expenditure items remain frozen. Revenues, on the other hand, will increase due to VAT adjustments and other energy-related taxes, leading to a shift toward fiscal restraint.
The fundamental question is how to correct budget imbalances without derailing the expansion. Previous experiences, both traumatic and successful, and those of EU partners, highlight the central role of gradual adjustments and impact assessment of measures: precision is key, considering the transformations in the productive fabric, which may not respond uniformly to stimuli that worked in the past.
For instance, tax deductions for housing, while a significant drain on public resources, do not contribute to increasing supply, a current bottleneck. Similarly, the disbursement of over €3 billion for business digitization has not been accompanied by improved productivity or productive investment, possibly due to inadequate resource allocation mechanisms. Public investment has declined by two-tenths as a proportion of GDP, with available budgetary data confirming persistent shortcomings in the execution of European funds. Private investment also does not fully respond to stimuli, with the economic equipment effort decreasing, standing nearly five points below pre-pandemic figures.
A more sustainable fiscal path, grounded in management improvements, should not jeopardize growth. While budgetary policy may lose prominence, other growth engines such as household consumption, the labor market, and the overseas success of Spanish companies remain. A relaxation of monetary policy is also anticipated when the ECB ensures the irreversibility of deflation.
In summary, the Spanish economy can maintain a favorable growth differential with Europe without generating external deficits or a credit bubble. Future prosperity relies less on significant internal macroeconomic adjustments and more on changes in key public policies. It also hinges on the EU’s ability to adapt to a radically different global environment, especially in areas where it has been delegated competence, such as the integrity of the single market, industrial policy, and trade.
GDP Insights: According to the latest INE estimates, Spain’s GDP in 2023 was 2.5% higher than the 2019 level, demonstrating a recovery similar to the eurozone (3.2%, or 2.4% without Ireland). The composition of this growth differs: Spain has seen a more prominent role played by public sector consumption and the external sector, while household consumption approaches the 2019 level, and investment is below, in contrast to the eurozone, where both variables exceed previous values.