MADRID, July 21 (EUROPA PRESS) –

The composition of the next Spanish government after the July 23 elections is unlikely to involve a substantial change in the country’s fiscal and economic trajectories, although the priorities of the various possible resulting administrations could change significantly depending on the election result, according to the DBRS agency.

In the Canadian firm’s view, the risk of a disruptive policy shift following the election is mitigated by several factors, including the reactivation of fiscal rules from 2024, the commitment of major political parties to fiscal sustainability and the EU fiscal framework, and the incentives provided by European NextGen funds.

“Whatever the composition of the next government”, Spain’s path to gradual fiscal consolidation will be supported by the reactivation of EU fiscal rules, “which will limit the fiscal space of the next administration, as well as the risks of fiscal gaps in the next legislature”, in addition to the engagement of the PP and the PSOE with fiscal sustainability and the EU fiscal framework.

In fact, for DBRS, although government priorities could change significantly after the election, Spain’s fiscal and economic trajectories “will remain broadly similar for at least the next two years.”

In this regard, remember that fiscal and economic challenges remain largely structural, so they are unlikely to change dramatically in the near term.

Thus, he notes that while the PP might be more inclined towards tighter control of spending growth leading to tighter fiscal policy, a PP-Vox government is likely to use all available fiscal space to cut taxes, as well as review the temporary levies on energy companies, banks and wealthy individuals introduced by the current government.

As for Vox, he warns that this party’s views on immigration, gender policies and climate transition could lead to new disputes with the EU, although he believes that the PP leadership would soften political initiatives on this front and moderate its rhetoric without excluding the risk that internal clashes within a hypothetical PP-Vox alliance could complicate policy-making and lead to government instability.

On the other hand, DBRS considers that if the PSOE manages to stay in power, a broad continuity of policies is to be expected, mainly aimed at strengthening the welfare state, including protecting the purchasing power of pensions and strengthening the public health system, while it will remain important to increase tax revenues as a percentage of GDP towards eurozone levels.

“Overall, we do not expect material differences in terms of budgetary trajectories during the next legislature, even if the priorities of the government could be very different”, summarizes the agency.

In this regard, he points out that over the next two years, the country’s fiscal performance will continue to be largely driven by the cyclical recovery and the elimination of measures to deal with the energy and inflationary shock, unless the next government commits to strengthen the fiscal adjustment.

STRUCTURAL PROBLEMS.

“Regardless of the political outcome, the next administration will face the same key structural problems,” concludes the risk rating agency, citing the importance of rebuilding fiscal buffers and reducing high levels of public debt, especially in a context of higher financing costs and higher age-related spending.

Additionally, from an economic perspective, tackling Spain’s low productivity and high levels of unemployment, as well as improving the resilience of its economy, will also continue to pose challenges.

On the other hand, DBRS points out that Spain’s fragmented and polarized politics could make it difficult to form a cohesive majority, warning that if the parties fail to reach an agreement and end up calling a snap election, “this could lead to delays in implementing reforms” of Spain’s recovery plan and limit the incumbent government’s room for maneuver.