Updated stability programme of Spain, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 75/5

On 4 March 2008, the Council examined the updated stability programme of Spain, which covers the period 2007 to 2010 (2).

Spain has been enjoying a long period of sustained growth averaging 3,75 % over the last twelve years, well above the euro area (at around 2 %). Persistently low real interest rates and dynamic demographics have been feeding strong domestic demand and job creation as well as an unprecedented growth in the housing sector.

Moreover, successive labour market reforms significantly reduced structural unemployment. In parallel, a number of imbalances have emerged or persist, such as a widening external deficit and the inflation differential with the euro area, while productivity growth was consistently low. Regarding public finances, a successful expenditure-based consolidation process took place since the mid-nineties, which improved the government balance from a deficit of around 6 % of GDP to a close-to-balance position in 2000 and a comfortable surplus since 2005. Total tax receipts have grown by about 4,25 percentage points of GDP since the mid-nineties boosted by a tax-rich growth pattern. Going forward, population ageing might negatively impact on the long-term sustainability of public finances, mainly as a result of increasing pressure from pension expenditure.

The macroeconomic scenario underlying the programme envisages that real GDP growth will decelerate from 3,8 % in 2007 to 3,1 % on average over the rest of the programme period. Assessed against currently available information (3), this scenario appears to be favourable throughout the programme period. In 2008, inflationary pressures, lower growth expectations, as well as the developments in the housing sector are expected to weigh on disposable income and point towards lower GDP growth than projected in the programme. Also the growth composition presented in the programme is favourable, in particular concerning the adjustment path of the residential construction sector. While the programme expects a deceleration of investment in dwellings, the Commission services' autumn 2007 forecast projects a contraction of the sector, starting already in 2008, implying a stagnation of total investment in 2009. However, due to lower imports the contribution of net exports to growth could improve compared to the programme. Finally, the programme's projections for inflation appear on the low side in the light of the most recent available information on food and oil prices.

For 2007, the general government surplus is estimated at 1,8 % of GDP in the Commission services' autumn 2007 forecast, against a target of 1 % of GDP set in the previous update of the stability programme. Half of the difference can be explained by the positive base effect from 2006. The other half results from higher-than-targeted revenue growth in 2007, which was however partly offset by higher-than-budgeted expenditure growth. Recent information points to the possibility of a better final outcome above 2 % of GDP, owing to even higher-than-expected revenues in 2007, especially from direct taxes, reflecting the high dynamism of corporate profits. The better-than-expected budgetary outcomes in 2006 were used to pursue...