Spain's new government will take office amid a backdrop of economic growth, marked by declining unemployment and lower debt levels. However, it will also encounter pressing structural challenges that demand immediate action.
In recent months, inflation has emerged as a significant concern for citizens, with essential goods experiencing price hikes. In July, a consumer confidence survey conducted by the Centre for Sociological Research (CIS) revealed that nearly 30% of respondents felt their household situation had worsened over the past six months. Of these, 61% attributed their concerns to rising prices, while 16% cited stagnant wages.
“The Bank of Spain projects that inflation will be at 3.7% next year. The real challenge will be in the final stretch, as reducing inflation from 10% to 3% is relatively easier than from 3% to 2%, where expectations are set,” explained economist Isaac Baley.
In response to the current economic climate, governments typically pursue two strategies: offering short-term direct subsidies to affected sectors or, more wisely, working towards reducing energy dependency, according to Patricia Gabaldón, an economics professor at IE University.
Historically, Spain has faced similar situations. In 2011, then-Prime Minister José Luis Rodríguez Zapatero called early elections amid an economic crisis, leading to Mariano Rajoy's absolute majority and the subsequent approval of what were deemed the most austere public accounts in democracy.
As the current legislature comes to a close, the new government will inherit the general budgets from 2023, with concerns that there may not be sufficient time to present the 2027 budgets. Economist Pablo Tucat optimistically predicts that new budgets could be in place before summer, while others, including a representative from the trade union CCOO, express skepticism, suggesting the next accounts may not be presented until 2028.
“We need budgets that support economic growth and job creation,” said Gabaldón, emphasising the need to end the current state of provisionality, which creates uncertainty and hampers new investments in Spain.
Beatriz López-Valcárcel, a professor at the University of Las Palmas, highlighted another critical issue: “Theoretically, we could continue extending budgets since, unlike in the US, the state does not shut down. However, what will significantly change is the new system of regional financing, which will heavily depend on political balance.” She believes the next government will face increased healthcare spending under much stricter resource constraints than the current administration.
