The Organization for Economic Cooperation and Development (OECD) confirms the scenario of cooling of the global economy that will lead next year to weaker growth and still pressured by inflation. In this context, the ‘think tank’ that brings together the most developed economies on the planet warns Spain that it needs a “stronger and more sustained” fiscal consolidation to continue reducing public debt and be able to divert resources, at the same time, to spending. . related to population aging and boosting growth.
In its World Economic Outlook, which the organization published this Wednesday, the OECD rules out that Spain will be able to reduce debt below 110% of GDP neither in 2024 nor in 2025. The organization has revised the GDP forecast for this year up to 2.4%, one tenth above what it estimated in September. This advance will allow Spain to reduce the liabilities of all Public Administrations to 109.5% at the end of the year (from the 113.1% at which it dismissed in 2022).
In volume, the debt has not stopped growing and in September it reached a record of 1.57 trillion, according to what was announced in the middle of this month by the Bank of Spain. However, the rate has been decreasing due to the denominator effect until it stands at 109.9% of GDP, close to the Government’s new objective of 108.1% for the entire year that the OECD questions with its new calculations.
Looking at the rest of its forecast scenario, the ‘club’ places the debt ratio at 110.1% next year and 110% the following year. These estimates, together with the deficit estimates, which stand at 3.2% in 2024 and 3.1% in 2025, would lead Spain to fail to comply with the current fiscal rules. In January, the European Union deactivates the escape clause of the Stability Pact, so, pending the reform finalized by the Twenty-Seven and promoted by the Government under the rotating presidency of the European Council, the 3% ceilings will once again be in force. deficit and 60% of public debt over GDP.
Gradually eliminate tax cuts on energy and food
Countries must return to fiscal discipline after four years in which they have had some leeway to deal with the consequences of the pandemic, the energy and inflation crises, and the Russian invasion of Ukraine. For this reason, the organization states that the Measures that were approved to deal with the blow that the inflationary shock dealt to companies and families must end as planned.
He cites policies such as the 200 euro check for low-income households, the reduction in VAT on food, specific aid to specific sectors, the extension of tax reductions on gas and electricity or transport subsidies and points out that, While most will end in December 2023, the energy and food tax cuts are scheduled to “phase out in the first half of 2024.”
One of the economies that will grow the most in 2024 and 2025
On the positive side and, despite the fact that the national economy is slowing down, the OECD predicts that Spain will grow 1.4% next year – above the 1.1% it estimates for the Eurozone or the 1.3% it estimates. calculated for the United States – and that this progress intensifies in 2025 to around 2%, when it would advance more than the measure of the countries that make up the organization, thanks to the progressive decrease in inflationary pressures and the deployment of the projects of the Recovery Plan, Transformation. and Resistencia (RTRP), linked to the Next Generation funds.
A restrictive monetary policy – the European Central Bank has warned that interest rates will remain high longer than expected – and a less favorable fiscal policy will curb private and public consumption next year. Investment will also slow due to tight credit and less favorable financial conditions. The organization considers that Spanish exports will improve from 2025, favored by the greater growth of the main European trading partners.
The think tank warns that inflation will rebound throughout the first half of next year, as measures to stop the rise in energy prices have been gradually withdrawn since December. However, the general CPI rate will decrease again towards the end of 2024 and in 2025. The underlying rate would remain high in 2024 due to the delayed effect of the impact of the rise in energy prices, but it will decrease in 2025. Regarding the market of work, which has remained “robust” throughout this year, foresees that the unemployment rate will stagnate this year and next year at 12% and that it will only be reduced to 11.8% in 2025.
Important risks and tax and employment recommendations.
The organization emphasizes that these perspectives “are surrounded by significant risks.” Thus, a new escalation of geopolitical conflicts could put pressure on energy prices and inflation and worsen the economic prospects of Spain’s main trading partners. The slow implementation of the recovery plan could slow growth more than expected. On the contrary, a faster improvement in the international environment and a greater impact of European funds would support activity.
Regarding the recommendations, the OECD focuses on two types of measures. It is committed to promoting R&D projects through public-private partnerships and reducing regulatory differences between regions. Also for prioritizing qualifications and educational results together with more efficient active employment policies to improve the prospects of young people. Finally, the organization reminds Spain that meeting the objectives in the fight against climate change will require a tax regime that is more respectful of the environment, with a broader tax base and fewer exemptions.
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