Spain’s Budget Deficit Could Hit Record Low in Decades
- BBVA Research estimates that the public deficit will be reduced to 2.4% of GDP in 2025, thanks to the cyclical boost of a growing economy adn the lower...
- according to the BBVA Research Fiscal Observatory published this Friday, untill October 2025, public revenues grew strongly and spending remained contained, indicating a positive evolution in the fiscal...
- the cyclical recovery of tax collection, the normalization of tax rates, and the lower incidence of extraordinary factors at the end of 2024 favored a reduction in the...
BBVA Research estimates that the public deficit will be reduced to 2.4% of GDP in 2025, thanks to the cyclical boost of a growing economy adn the lower weight of remarkable measures that have been extended since the inflation crisis caused by the invasion of Ukraine.
according to the BBVA Research Fiscal Observatory published this Friday, untill October 2025, public revenues grew strongly and spending remained contained, indicating a positive evolution in the fiscal consolidation process of 2025, excluding the effects of the ‘dana’ (storm) and judicial rulings of 2024.
Recovery of Revenue
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the cyclical recovery of tax collection, the normalization of tax rates, and the lower incidence of extraordinary factors at the end of 2024 favored a reduction in the deficit in 2025 and compensated for the upward pressure on defense, pension, and debt interest spending.
Moreover, a further reduction in the deficit is expected in 2026, to 2.1% of GDP, driven by the strength of economic activity and the impact of the elimination of energy measures and aid for the ‘dana’, in a context of increasing pensions and defense spending.
The observatory predicts that compliance wiht fiscal rules will require a consolidation effort of 0.2 percentage points of GDP in 2026 and 0.4 percentage points in 2027, so measures will be needed to bring the adjusted primary balance (excluding debt interest) close to equilibrium by the end of 2027 and reduce debt to 96.6% of GDP.
These forecasts point to an average growth of net primary expenditure of around 3.5% during 2025-2030, above the 3% committed to Brussels in the structural fiscal plan.
Spain coudl close with the lowest deficit in almost 20 years thanks to the cyclical boost of the economy.
The Spanish economy is experiencing a strong cyclical boost that could allow it to close the year with the lowest deficit in almost two decades. According to sources consulted by THE ECONOMIST, the deficit could be around 4.5% of GDP, a figure that would be well below the forecasts made by the Government and the European institutions.
This improvement in the deficit is due to several factors, including the strong growth of economic activity, the increase in tax collection and the control of public spending. In addition, the fall in energy prices has also contributed to reducing the deficit, as it has lowered the cost of energy for both households and businesses.
the Government is confident that it will be able to meet its deficit targets for this year,and is already working on a new plan to reduce the deficit in the coming years. This plan includes measures such as increasing tax collection, controlling public spending and promoting economic growth.
However, some experts warn that the current improvement in the deficit is not sustainable in the long term. They point out that the cyclical boost of the economy is temporary, and that the deficit could increase again when the economy slows down. Thus, they believe that it is indeed vital for the Government to take structural measures to reduce the deficit in the long term.
Spain Projected to Record Lowest Budget Deficit in Two Decades
Spain’s government anticipates a budget deficit of 0.9% of Gross Domestic Product (GDP) for 2023, marking the lowest level in nearly 20 years, according to a report published by El Economista on January 26, 2026. This improvement is largely attributed to robust economic growth.
Economic Performance and Deficit Reduction
The projected deficit represents a significant decrease from the 4.8% recorded in 2020,a year heavily impacted by the COVID-19 pandemic.The economic upswing has provided a cyclical boost to government revenues. El Economista reports that tax collection increased by 12.4% in 2023,reaching €287.7 billion.
Key Contributing Factors
- GDP Growth: Spain’s GDP grew by 2.5% in 2023, exceeding initial forecasts.
- Tax Revenue: Increased tax revenue, particularly from income tax and Value Added Tax (VAT), contributed to the deficit reduction.
- EU Funds: Disbursement of funds from the European Union’s NextGenerationEU recovery plan also played a role, though the specific contribution isn’t detailed in the report.
Government Debt
Despite the improved deficit, Spain’s public debt remains considerable. As of September 30, 2023, the national debt stood at €1.53 trillion, equivalent to 111.2% of GDP, according to data from the Bank of Spain. The government aims to gradually reduce this debt level in the coming years.
Future Outlook
The Spanish government forecasts a further reduction in the deficit to 0.7% of GDP in 2024. However, this projection is subject to economic conditions and potential geopolitical risks. El Economista notes that maintaining this trajectory will require continued fiscal discipline and sustained economic growth.