The Spanish economy is doing reasonably well, although the announced slowdown is being confirmed, but the main vulnerability is the deficit and debt that require readjustment, according to Funcas' analysis. According to the calculations of the Cajas Foundation, without reforms the deficit will not fall below 3% in five years, nor will the debt be able to remain below the 100% bar in the same period of time, until 2028.
Specifically, in 2024, if there are no adjustments, inflation will be 3.6% and public debt will exceed 106%. Therefore, well above the Government's forecast, which contemplates reducing the deficit to 3% next year. Furthermore, an important detail, these calculations incorporate the end of anti-inflation measures as of January.
These deficit and debt imbalances, in a context of reactivation of fiscal rules starting in January, and withdrawal of support from the ECB, force action, according to Funcas. “Without adjustment measures, the debt would not comply with European commitments,” he says. “The return of fiscal rules will make the readjustment of public accounts mandatory, but even without fiscal rules, the pressure of the markets would go in the same direction,” says Carlos Ocaña, general director of Funcas, who adds that if they are not taken measures, “we are going to have to face a significant imbalance and significant interest payments.”
In this context, Funcas considers it essential to withdraw the social shield in January to confront inflation, at least the measures that are general in nature. It is a considerable package, totaling 5,000 million euros, and which, as we detailed, represents a real dilemma for the Government, forced to choose between maintaining aid or fiscal orthodoxy.
Funcas considers that measures to lower the price of energy and food make sense to help certain groups, but that non-selective measures that reach all sectors of society “make less sense, are very expensive and "They don't achieve their goal," says Carlos Ocaña. And specifically, with regard to the reduction in VAT on food, they are also in favor of eliminating this subsidy. In this area, Raymond Torres, director of Economics at Funcas, states that, although interannual inflation is very high, it is largely due to the base effect, and that on the other hand, inter-monthly inflation has a trend of “net moderation, with the exception of some products, such as olive oil.”
On the other hand, Funcas has raised its growth forecast this year by two tenths, to 2.4%, thanks to the momentum in the first part of the year, although it has reduced its forecast for 2024 by one tenth, leaving it at 1.5%. . The reason is a moderation in domestic demand and a more uncertain international environment.
