The Independent Fiscal Responsibility Authority (AIReF) has made an initial estimate of the impact on the Spanish economy of the trade war unleashed by Donald Trump worldwide. According to their calculations, the uncertainty caused by the erratic moves made by the President of the United States in his chaotic tariff policy will subtract up to half a point from the Gross Domestic Product (GDP) growth this year "if not corrected quickly".
However, the fiscal oversight body has chosen not to adjust its GDP growth forecast for 2025, which remains at 2.5%. Unlike other national organizations that have recently improved their projections for the Spanish economy in a context of strong growth compared to European countries, the AIReF has preferred to show some caution, maintaining its estimate in a scenario of high volatility and uncertainty in global markets.
In contrast to the announcement made just yesterday by the Governor of the Bank of Spain, José Luis Escrivá, who hinted at a downward revision of their forecasts after having recently improved their estimates to 2.7%, the AIReF has chosen to keep theirs unchanged, both in macroeconomic and fiscal terms, without leaning towards a worsening of the central scenario at this time.
"We do not modify our growth forecast for 2025 compared to what we had in January," stated Esther Gordo, Director of the Economic Analysis Division of the AIReF, at a press conference this morning. She explained that they made this decision based on two factors. First, the uncertainty about the outcome of this trade war. "Yesterday's decisions could radically change any impact estimate", she said in reference to Trump's unexpected turn activating a three-month truce on reciprocal tariffs worldwide, maintaining a universal rate of 10%, with the exception of China, which saw its punishment increased to 125%.
"Given the uncertainty about the outcome, it is complex to incorporate it into a macroeconomic scenario," Gordo emphasized. The other factor complicating the forecasting process is the absence of impact estimates of the trade war by international organizations, as initially the ECB calculated a 0.2-point decline at the European level, but that projection has become obsolete with the latest decisions by the Trump administration.
Thus, the AIReF is refraining, for now, from revising its forecasts for the Spanish economy, although they are cautious due to the potential half-point impact that will largely depend on how long the uncertainty persists in a "complex and, above all, changing" environment, as defined by the head of economic analysis, who announced a review of the figures after Easter "with a medium-term perspective".
Despite this, the Fiscal Authority warns that "the downside risks around this growth scenario are high," especially because "uncertainty is reflected in a stock market decline that could hinder investment recovery." Furthermore, the increase in tariffs is fueling expectations of a recession in the US, which could lead to a "fragmentation of trade relations" with a significant impact on value chains. Nevertheless, they point out that imposing tariffs on China could potentially have a positive impact on the Spanish and European economies in terms of inflation due to the reduced presence of Chinese products in US markets and the redirection of those exports to European markets.
Regarding the projected deficit for public administrations, the AIReF has also chosen to maintain its calculations from last November. Specifically, they anticipate the total deficit to reach 2.7%, taking into account the impact of the DANA (without this impact, it would be 2.4%). The Fiscal Authority estimates that the measures to mitigate the effects of the floods in 2024 amounted to four tenths of GDP, in addition to another three tenths this year. A total of seven tenths are considered when making these projections, as well as the changes made by the Government in tax and public spending policies and the gradual withdrawal of measures to mitigate the inflation crisis.
By subsectors, the AIReF's macroeconomic outlook shows a deficit of 2.2% in the Central Administration, representing an increase of two tenths compared to the previous forecast. For Social Security, the deficit increases by one tenth, reaching 0.3% of GDP. In the Autonomous Communities, the deficit will rise to 0.5%, one tenth less than previously estimated. And in the case of Local Corporations, they will end 2025 with a surplus of 0.3%, improving by three tenths compared to the previous report.
The updated forecasts also include a path for public debt. The AIReF anticipates a decrease in the debt-to-GDP ratio by one point this year, to 100.8%. Thus, the pace of debt reduction will slow significantly, from 3.3 points to just one point.
Given this macroeconomic scenario, the Fiscal Authority recommends to the Ministry of Finance to "monitor budget execution and establish the necessary coordination mechanisms to ensure compliance with the national and European spending rule," as the forecast is for net primary spending (the new key variable following the entry into force of the European fiscal framework) to grow by 4.6% in 2025, nine tenths above the spending commitment of the Medium-Term Structural Fiscal Plan (PFEMP) and at the limit of the annual deviation allowed by European authorities. All this, considering that the European Commission has allowed Member States to request activation of the national escape clause, in order to exclude the increase in defense spending of up to 1.5% of GDP from the 2023 level.