BBVA Research raises its public deficit forecast to 14.4% of GDP in 2020

Madrid, Jul 29 (EFE) .- BBVA Research has raised its public deficit forecast at the end of 2020 to 14.4% of GDP, after verifying with recent budget execution data that the deterioration in public accounts will be greater than expected ago three months, which it considers could compromise the sustainability of the public debt.

The containment measures and the state of alarm have lasted longer than initially expected, and the increase in spending and loss of income will be more intense than initially estimated, according to the entity in its fiscal observatory for the third quarter published this Wednesday, in which he underlines that the Government has mobilized funds for the equivalent of 15% of GDP.

For 2021, it considers that the cyclical recovery of activity and the withdrawal of a large part of the approved measures will favor a rapid reduction of the deficit to 8.4% of GDP, with an adjustment in spending more intense than the recovery of income.

The unprecedented crisis of COVID-19 will result in a notable increase in public debt, which will stand at the end of 2021 above 122% of GDP.

BBVA Research emphasizes that the existence of a significant volume of contingent liabilities (around 10 percentage points of GDP in the form of state guarantees to the private sector) represents an additional risk for the sustainability of Spanish public accounts.

According to the observatory, the risks regarding the deficit scenario lie in the fact that the high uncertainty about the pandemic and its effects on the economic situation will lead to greater spending needs, or that the high levels of debt and the lack of consensus trigger a deterioration of the perception about the solvency of public administrations.

However, it highlights that the recently approved European Recovery Fund (Next Generation EU) will ease the pressure of fiscal adjustment and provide a unique opportunity to tackle the necessary structural reforms. EFE

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