This Monday, economists raised their public deficit forecast by one tenth, to 3.4% of GDP, estimating that 2023 income will not be maintained., due to lower economic growth, as well as greater growth in spending by the Government. This forecast contradicts the forecast of the Executive, which, in its 2023-2026 Stability Plan, presented in Brussels at the end of April of last year, assured that the deficit will be reduced to 3% in 2024, a year ahead of schedule“due to the control of public spending, the increase in income and the dynamism of the labor market”, while pointing out that, “by 2023 it was expected to continue on the downward path, reaching 3.9% of GDP.
This was stated by the General Council of Economists (CGE) during the presentation of its Financial Observatory and Economic Keys on the third quarter of 2023. The CGE, which recalls that the deficit target of the European Union (EU) is 3% for its member states, justifies the increase in its deficit forecast by claiming that “The income from the previous year will not be maintained due to lower economic growth and despite the recovery of the energy VAT“.
On the other hand, economists They maintain their growth forecast at 1.6% for 2024a fact that “will depend on how the Red Sea conflict evolves and affects at the price of energy and raw materials freight,” as indicated by the president of the CGE Financial Commission, Antonio Pedraza, who stressed: “We maintain our growth figure, since The strong growth of 0.6% in the last quarter of the year means that the year starts with positive inertia and traction“. Pedraza described Spain’s economic situation as a “miracle” taking into account the current context.
Likewise, the General Council of Economists, maintains its unemployment rate forecast for this year at 11.7%, “an excellent figure compared to the data of the last ten previous years”, he stressed, since the labor market continues to improve, with a decreasing unemployment rate. The number of affiliates stands at 20.8 million, while unit labor costs rise by 5%.”
Fall in foreign investment
The expert has indicated that he is concerned about the evolution of foreign investment, which fell at the end of 2023 and has continued to fall at the beginning of 2024, a problem that hopes to be reversed so that the economy continues to grow. Another issue, which according to him, can affect growth is the extension of the General State Budgets, “since if the new accounts do not go ahead it would be a very distorting element that would cause insecurity and distrust.”
Pedraza too The average CPI forecast has increased by one tenth, to 3.2%, although “it may fall short depending on whether the Red Sea conflict that affects the price of energy and raw materials freight persists or worsens.” Likewise, he has considered that the percentage of debt over GDP will be harmed by “the increase in public salaries, the increase in the cost of pensions and the cost of the debt burden itself, which already exceeds 2%, in addition due to lower growth”. Consequently, the CGE considers it “difficult to lower its percentage from the current ratio” and even predicts “a slight increase” of two tenths, up to 106.6%, while placing the unemployment rate expected for 2024 at 11.7%.
The General Council of Economists has explained that in the preparation of these forecasts the uncertain geopolitical environment due to war conflicts in Ukraine and the Middle Eastand, internally, “the increase in prices and business costs, productivity that is not taking off and due to the persistent drought”, which affects the agricultural and tourism sectors.
Slowdown of the Economy
The director of the CGE Studies Service, Salvador Marín, has highlighted that the advanced indices for this quarter clearly point to “a certain slowdown in the coming months” and described it as “sensible” to focus on “trying to ensure that these forecasts are not confirmed.”“. For this reason, he advises that both the institutions and the business sphere and workers’ representatives work to consolidate measures that focus on better and greater productivity and to achieve financial independence “through the very necessary reduction of both public and private debt”.
For his part, the president of the CGE, Valentín Pich, has acknowledged that the data can be seen in positive terms, but has considered that “the geopolitical environment must be taken into account, as it may lead to additional tensions that make the forecasts worse.” . In his opinion, “if the objective is for the 2023 figures to be consolidated, then all the time and effort must be dedicated to the area of productivity, productive investments and the long-awaited control of the public deficit.”