Spain and Europe in an era of policy uncertainty
Fecha: noviembre 2024
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º 6 (November 2024)
Index
The Spanish economy continues to grow faster than the European average, with growth projections revised upwards for 2024 and 2025 to 3% and 2.1%, respectively. However, fiscal slippage relative to official targets is expected in 2025, requiring the government to introduce approximately 8 billion euros in budget savings to align with official targets – allowing for sustained short-term growth, while increasing confidence and providing space for discretionary spending in the event of future shocks.
The euro area’s industrial sector, historically a pillar of economic strength, faces significant challenges in the wake of recent external shocks, with divergent performance across countries and sectors. Going forward, the outlook for the industrial sector remains uncertain; thus, requiring that country-specific policies be complemented with EU-wide strategies to support key industrial sectors, such as the automotive industry.
Spain’s high-tech product export intensity ranked sixteenth in the EU-27 in 2022, which is a considerable improvement from its position between 2014 and 2018. Given the role played by the high-tech manufacturing industry in unlocking sustained competitiveness gains, strategies are needed to further improve Spain’s recent achievements in this area and to start to close the technology gap with other countries.
In 2024, the European Central Bank (ECB) introduced a “new monetary playbook,” emphasizing the transition from a rigid rulebook to a more adaptive and flexible operational framework to address today’s complex economic landscape. While not without risks, this “new monetary playbook” marks a new era, in which the ECB continually fine-tunes its approach in response to evolving economic conditions, holding fast to its commitment to long-term stability and growth.
In efforts to achieve convergence with EU supervisory standards and in response to recommendations from the European Systemic Risk Board (ESRB), the Bank of Spain has recently announced significant revisions to the countercyclical capital buffer (CCyB), increasing it gradually from 0% at present to 1% by year-end 2026 and introducing greater flexibility. The changes highlight the need to recalibrate Spain’s CCyB, taking into account potential tensions between micro and macro perspectives, to allow for greater adaptability in response to the economic cycle.
The recent fiscal agreement reached with Catalonia seeks to increase the region’s fiscal autonomy, bringing with it the potential to reshape Spain’s autonomous financing framework. Nevertheless, while implementation faces challenges, it underscores the need for comprehensive debate on the future of Spain’s interregional equity and fiscal stability.
In its first ten years of operation, Spain’s Independent Authority for Fiscal Responsibility (AIReF ) has helped support the functioning of the country’s fiscal policy, enhancing transparency and economic governance. While there are still several areas where AIReF could be improved, the institution’s performance is increasingly in line with international standards of good practice across IFIs.
Over the last two decades, Spain’s gender pay gap has narrowed significantly, from 29% in 2002 to 17% in 2022. However, recent stagnation in convergence is prompting a debate about the policies that need to be adopted for continued progress in the years to come.