Spain’s Independent Authority for Fiscal Responsibility (AIReF) now expects the country’s deficit to reach 2.8% of GDP in 2026, two-tenths higher than its July estimate. The watchdog says Spain will miss its fiscal targets agreed with the European Union this year, as rising expenditure outweighs stronger revenue.

Net primary expenditure is forecast to grow by 7.3% in 2026, more than double the 3.5% limit set in Spain’s fiscal plan. AIReF president Inés Olóndriz said the increase reflects both temporary measures and structural spending. The authority expects the targets in the fiscal plan to be missed over the rest of its term as well.

Even after allowing for EU flexibility to exclude certain defence and energy-security spending, AIReF expects Spain to exceed the permitted deviation in 2026. It has not calculated the size of the breach, citing uncertainty over whether the government will seek to activate an escape clause for energy measures and whether a future government will submit a new medium-term fiscal plan.

Temporary measures introduced in response to the energy crisis are expected to add around €9 billion to the deficit, according to AIReF, compared with the government’s estimate of about €12 billion. Without those measures, the deficit would be 1.9% of GDP. Other spending pressures include pensions, defence and higher debt-interest costs. The deficit is forecast to fall to 2.6% in 2027 as temporary measures are withdrawn, before returning to around 3% from 2028.

AIReF also raised its economic growth forecasts by one-tenth of a percentage point, to 2.6% in 2026 and 2.2% in 2027. It cited stronger recent indicators, particularly domestic demand and private consumption. The authority expects public debt to continue declining, projecting a ratio of 95.4% of GDP at the end of its forecast period.

Olóndriz warned that the government’s lack of budget planning has limited the authority’s assessment. Spain has been operating with rolled-over budgets since 2023 and has not presented a budget plan during that period. AIReF also noted that the inflation rate reached 4.9% in October, while forecasting growth to slow to 1.7% in both 2030 and 2031.

Sources: El País Economía.