Updated stability programme of Spain, 2005-2008 - Main contents

EN

Official Journal of the European Union

C 82/10

On 14 March 2006 the Council examined the updated stability programme of Spain, which covers the period 2005 to 2008.

At an average annual rate of 3,5 %, real GDP growth in Spain was among the highest in the EU over the last ten years. Increasing by 3,25 % per year, job creation underpinned robust growth. In contrast, Spain has been lagging behind the euro area in terms of productivity growth (0,5 % compared with 1 % in the euro area). HICP inflation while easing to a level close to 3 % in 2004 has remained above the euro-area average. The higher inflation and lower productivity growth than its main (trade) partners have led to competitiveness losses contributing together with robust domestic demand to the deterioration of the external position, which attained a deficit of 6,5 % of GDP in 2005. Fiscal consolidation since the second half of the nineties has contributed to containing such developments.

In its opinion of 8 March 2005 on the previous update of the stability programme, also covering the period 2004-2008, the Council invited Spain to adopt measures to prevent the emergence of unsustainable trends, in particular a comprehensive reform of the pension system aimed at aligning more closely contributions and pension benefits.

As regards budgetary implementation in 2005, the general government surplus is estimated at 1 % of GDP, which compares with 0,2 % in the Commission services' autumn forecast and 0,1 % of GDP in the previous update. The overachievement of the 2005 target is the result of higher-than-expected revenues, while the expenditure ceilings of the central government will most likely be met.

The new programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2). The update was submitted four weeks beyond the 1 December deadline set in the code of conduct.

GDP growth is projected at around 3,25 % over the programme period. GDP is projected to be sustained by domestic demand, though the growth of private and public consumption as well as residential construction is expected to slow down. The negative contribution of the external sector is expected to diminish, whilst the external net borrowing is projected to widen further to above 8 % of GDP in 2008. Inflation should decelerate from 3,5 % in 2005 to 2,25 % in 2008. Based on the Commission services' autumn 2005 forecasts, this macroeconomic scenario appears plausible, although the negative contribution of the external sector to growth could be larger, thus leading to a faster deterioration of the external position, and inflation could be higher.

The update aims at (i) maintaining budgetary stability over the economic cycle, in line with the ongoing reform of the Budgetary Stability Laws, (ii) prioritising productive public expenditure and policies aimed at improving the quality of public finances, and (iii) ensuring the long-term sustainability of public finances as a necessary means of guaranteeing the sufficiency and sustainability of social spending. The general government budget balance surplus is...