The agency warns that a prolonged political blockade "would weaken the ability of the authorities to face fiscal challenges"

MADRID, 25 Jul. (EUROPA PRESS) -

The credit agency Moody's has projected for Spain a deficit of 4% of the Gross Domestic Product (GDP) for 2023 and 3.2% next year, which means correcting the Government's forecasts upwards by one and two tenths in 2023 and 2024, respectively.

This deficit path, explains the firm in a recent analysis, would place the debt/GDP ratio at 111.9% this year and just below 110% in 2024. And, the firm has taken advantage of the report to make some notes regarding the July 23 elections, where there was no clear winner, neither the left nor the right bloc.

This scenario, Moody's says, could have consequences for policy making, especially on the fiscal front. In addition, the report points out that during the electoral campaign the political parties have shown themselves "reluctant" to address the challenges of Spanish public finances.

For these reasons, the agency believes that reaching the government's 3% of GDP budget deficit target for next year "will be demanding", as well as continuing to clean up public finances, given the slowdown in growth and previous spending commitments.

The agency also warns that, in view of the electoral results on Sunday, a prolonged political blockade "would weaken the authorities' ability to face Spain's fiscal challenges", in a context, he adds, of "deceleration of economic growth".

To this equation we should also add the restoration of fiscal rules in the European Union, which were suspended due to the pandemic. These new rules are likely to be different from those known to date. Moody's points out that the restoration of tax buffers during good times is a "key" aspect of the current debate around the reform of EU tax rules.

Regarding the future credit profile of Spain, Moody's recognizes that the Spanish economy maintains greater resistance and less susceptibility to event risk than in the financial crisis of 2008. For this reason, the agency points out that the evolution of public finances will be "key" for the country's rating in the coming years.

Finally, the agency has dedicated a part of its report to extol Spain's pro-European position, which in the firm's opinion is demonstrated by the fact that the PP and PSOE have been the parties with the most votes in the elections and the reduction of temporary employment with the labor reform. On this last point, Moody's points out that it has made the Spanish economy more resistant to shocks.