The Independent Authority for Fiscal Responsibility (AIReF) has revised its economic growth forecast for Spain down by two tenths for the current year, now projecting a growth rate of 2.3%.

This adjustment reflects a 'total climate of tariff uncertainty' stemming from the ongoing trade war initiated by the United States.

AIReF also reduced next year’s growth forecast by three tenths, predicting a 1.7% expansion.

Cristina Herrero, president of AIReF, announced these changes in a press briefing, citing the deterioration of external assumptions regarding global trade and growth as outlined in the latest International Monetary Fund (IMF) report.

The IMF has reduced its global growth projection by half a percentage point for 2025 due to the trade conflict, although Spain has been somewhat shielded, being the only major European economy to see an upward revision in growth projections, increasing by two tenths to 2.5%.

The IMF and AIReF highlight potential impacts from tariffs imposed by the United States, noting that Spain's economic exposure is lower than that of other European nations.

Sales to the U.S. account for only 2.3% of Spain’s GDP, compared to an average of 4.6% across the European Union.

In its economic outlook, AIReF is less optimistic than the Spanish Government on future economic conditions.

Previously, the Government maintained its growth projection at 2.6% for this year and 2.2% for the next.

The official reasoning was that tariffs would detract one tenth from Spain’s external sector, balanced by a corresponding boost in private consumption.

According to Herrero, while the Government acknowledges the anticipated deterioration of the external balance, it has displayed a more optimistic view towards domestic demand.

The Government's optimism extends to projections for 2027 and 2028, expecting GDP growth rates of 2.1% during those years, while AIReF envisions a more subdued growth rate of 1.7%.

AIReF further expressed skepticism over the Government's recovery expectations for investment, suggesting it will not return at the rates projected by the Government.

The latest government projections accompany the first Annual Progress Report for the Fiscal and Structural Medium-Term Plan (PFEMP), submitted to the European Commission.

AIReF noted compliance with Brussels' guidelines but criticized the report for only updating fiscal forecasts until 2025 and macroeconomic projections until 2028, perceiving a lack of ambition in its content that limits medium-term fiscal policy orientation and hinders the identification of risks.

Herrero cautioned that Spain may require possible adjustments in income and expenditure as it approaches 2027 and 2028 to adhere to the FPEMP's guidelines.

The AIReF anticipates an average net expenditure growth of 3.9% between 2026 and 2028, compared to the Government’s projection of 3.2%.

These annual growth rates suggest an accumulated growth of 22.5% between 2024 and 2028 versus the 20.1% estimate by the Government, indicating a cumulative deviation of seven tenths of GDP by 2028, exceeding the anticipated margin.

The projected fiscal deficit is expected to remain below 3% during the forecast period, stabilizing at 2.8% in 2025 and 2.3% in 2026. However, it is forecasted to deteriorate to 2.5% in 2027, 2.7% in 2028, and 2.9% in 2029. During 2025 and 2026, an improvement in the budget balance is anticipated, driven by a reduction in fiscal measures and a decrease in the impact of recurrent operations, followed by higher budget deficits from 2026 onward due to rising interest payments and increased investment including defense spending, exacerbated by demographic pressures.

Despite a projected continuous decline in debt through the forecast horizon, this trajectory is expected to be slower due to reduced economic growth intensity in upcoming years.

Herrero criticized the Government's decision not to seek the AIReF's endorsement on the macroeconomic scenario for 2027 and 2028 presented in the Annual Progress Report.

This scenario was not included in the Government's October update, which only projected until 2026.

It has been suggested by AIReF that engaging with the independent body regarding the macroeconomic scenario would have been beneficial amid current uncertainties.

Such information is seen as potentially useful for state and regional governments in their budget preparation and longer-term planning.

In light of these developments, AIReF has urged the Government to broaden the scope of the Annual Progress Report by including a complete medium-term fiscal scenario and to initiate efforts to transpose the European fiscal framework into national law with the participation of all relevant stakeholders.