Spain: Moving towards a reduction in public debt amid strong growth

Spain is expected to generate primary surpluses from 2026 onwards. The primary deficit fell from 2.3% of GDP in 2022 to 0.7% in 2024, thanks to the removal of support measures put in place after the pandemic and the renewal of state budgets since 2023. The deficit is expected to narrow to 0.1% in 2025, and then turn into a surplus, which will increase until 2030 (+1.0%).

The stabilising primary balance would remain below the primary balance, enabling a reduction in public debt. From 2028 onwards, however, the gap between the two balances would narrow, implying a smaller reduction in debt in the medium term.

Until the end of the decade, nominal growth (4.1% on average) is expected to remain higher than the apparent interest rate (2.7%), due to continued dynamic real growth (2.0%) and inflation close to 2%. This will enable a reduction in public debt during this period.

Nevertheless, the debt ratio is expected to gradually stabilise at around 90% by 2030, with the apparent interest rate (3.1%) becoming very close to nominal growth (3.2%).

Public expenditure (excluding interest expenditure) is expected to remain fairly stable (as a percentage of GDP) until 2030. This is because the renewal of the 2023 budget for a third consecutive year is almost certain and could continue as long as the government remains in a minority in Parliament; moreover, the government has decided not to increase its defence spending to meet the threshold required by NATO.

From 2026 onwards, public revenue as a share of GDP will exceed expenditure. Such strong public-revenue growth, driven by robust domestic consumption and a healthy labour market, will lead to the emergence of a primary surplus, which will then increase.

Public debt is expected to continue falling until the end of the decade. It will be driven down by high real growth, which will clearly predominate in a climate where real interest rates are only expected to have a moderate impact from 2026 onwards.

From 2027 onwards, the debt ratio is expected to decline less sharply. The economy is expected to approach full employment by that time, which would affect real growth.

Public debt would fall below 100% of GDP by 2026 (101.8% in 2024) and reach 91.2% in 2030, according to our central scenario.

The three adverse scenarios would prevent public debt from falling below 95% of GDP (particularly if the government decided not to generate a primary surplus). In these situations, public debt would stabilise before rising slightly at the end of the decade.

Moderate steepening of the yield curve. In contrast to what is observed in Italy, the inflationary peak of 2022 led to a steepening of the yield curve in Spain.

Since then, the yield curve has flattened for short and medium maturities. Only longer maturities have seen rates rise (3.1% for 10-year bonds and 4% for 30-year bonds). However, they remain low compared with France and Italy.