Spain has to cut spending by 15 billion euros by 2028 to comply with Europe

The independent authority for fiscal responsibility (AIReF) presented its annual progress report on Thursday, concluding that even applying the escape clause for defence spending, Spain would need to make adjustments of 0.6% of GDP in 2027 and 0.3% in 2028 to keep the control account within limits and meet commitments. This implies an adjustment of around 15 billion euros.

It forecasts that primary spending net of revenue measures will grow by an average of 5% annually between 2025 and 2028, compared to the 3.4% in the medium term fiscal and structural plan (PFEMP) if no additional measures are taken.

Under current policies, net spending growth rates will exceed the plan's annual commitments by more than two percentage points in 2026 and 2027 and by more than one point in 2028. Therefore, AIReF believes that the cumulative control account would exceed the limit from 2026 onwards and reach 2.1% of GDP in 2028.

However, activating the national escape clause to accommodate defence spending reduces these deviations. In 2026, the accumulated control account would be at the limit of 0.6% of GDP, but in 2027 and 2028 it would again exceed the limits, reaching 1.5% of GDP in 2028. Therefore, even with the escape clause in place, AIReF considers the aforementioned adjustments necessary.

Furthermore, the AIReF has lowered its forecast for real GDP growth to 2.2%, down from the 2.3% it predicted in April. This aligns with the government's forecasts, but they differ on nominal GDP, which the government projects at 5.3% for 2026 compared to the 4.8% forecast by the AIReF.

In the medium term, AIReF has revised its growth forecasts for 2027 and 2028 upwards to 2% and 1.9%, respectively, due to increased capital flows. It further estimates that real GDP growth will slow to 1.7% in 2030. It warns that this scenario is subject to downside risks, particularly those related to armed conflicts.

On the other hand, it forecasts that the public administration deficit will rise in 2026 to 2.6% of GDP due to the temporary measures adopted.

Regarding debt, it forecasts that the public debt ratio will continue to decline in the medium term, although at a more moderate pace, with a reduction of just over five points in the next five years.