2023-04-30 00:04:57
The aging of the population puts upward pressure on public spending linked to this part of citizens to represent more than a quarter of the Gross Domestic Product (GDP) in 2050, according to the projections sent by the Government to the European Commission in the update of the Stability Program 2023-2026. Specifically, it will represent 26.1% of GDP in 2050. In 2022 it represented 23.2% of GDP, which means that it will increase by three percentage points in the period 2022-2050. If we transfer it to euros, the Government’s projections assume that public spending associated with aging can reach at least 783,000 million euros (calculating that Spanish GDP in 2050 will be around three trillion euros, as predicted by some studies). Currently, Spanish GDP exceeds 1.4 trillion euros, so that, at today’s euros, spending would exceed 383,670 million. The greatest increase occurs between now and 2040, when it will reach 25.2% of GDP. The Government has worsened its projections regarding the impact of population aging on public spending. Less than a year ago, also in the update of the 2022-2025 Stability Program, it calculated that it would not represent more than 24.5% of GDP in 2050 and only 23.6% of GDP in 2040. The explanation for this worsening in spending it comes exclusively from pensions; in the rest of the expenses associated with the aging of citizens (health, long-term care, education) it maintains the same weight over GDP. But that of pensions grows by 1.7 percentage points over the Gross Domestic Product until reaching 14.7% of GDP when a year ago Brussels was told that it would remain at 13% of GDP in 2050. And that includes the expected impact of the reforms on revenue, which could reach 1.7% of GDP in 2050. The Government calculates that spending will rise progressively as a percentage of GDP until it reaches 14.9% in 2046 and, from that year, it will decline in the following decades as the baby-boom generation disappears. In its projections it includes the measures adopted such as the new revaluation rule based on the CPI, which has led to an 8.5% increase in contributory benefits this year, or the new reduction coefficients for early retirement. In addition, it considers that the new incentive to delayed retirement will delay the effective retirement age by 1.2 years in 2040. For its part, spending on health will represent 7% of GDP in 2050 compared to the current 5.8% and spending on long-term care will from 0.8% of GDP to 1.3%, the same figures that were forecast last year. Finally, spending on education will experience a contraction of 0.4 points of GDP, mainly due to the lower number of young people projected for the coming decades as a result of the low fertility rates in Spain. Business margins Another relevant element this year is the rise in interest rates that the central banks have been carrying out to control inflation. The stability program recognizes that the main risk of the proposed macroeconomic scenario is a greater persistence of inflation and a more pronounced tightening of financial conditions. The ministry headed by Nadia Calviño assumes containment in the second round effects of inflation. The main reason is, says the document, that business margins reached their pre-covid levels at the end of 2022, “so their evolution in the following quarters should be marked by stability” due to effective competition and the reduction in prices. costs of energy and other raw materials. In addition, the Government ensures that wages will progressively recover purchasing power over the next few years. After the bankruptcy of Silicon Valley Bank, the rescue of Credit Suisse and the probable rescue of the First Republic, the Spanish government indicates that financial instability is a downside risk, although limited by the profound restructuring of the sector in the last decade, the reduced levels of indebtedness and the strengthening of regulation and supervision in recent years. However, he admits that the intense tightening of monetary conditions may cause episodes of financial stress in the sector. And although there are low levels of delinquency due to the reduction in household and company indebtedness in recent years, he points out that it is necessary to strengthen monitoring of the financial sector and the impact of the rise in interest rates on household finances and the possible credit restriction to companies.
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