Population aging is putting upward pressure on public spending for this segment of citizens to represent more than a quarter of gross domestic product (GDP) by 2050, according to forecasts sent by the government to the European Commission in the update of the Stability Program 2023-2026. In concrete terms, it will represent 26.1% of GDP in 2050. In 2022, it represented 23.2% of GDP, which means it will increase by three percentage points in the period 2022-2050. Converted to euros, the government’s projections assume that public expenditure related to aging could amount to at least €783,000 million (Spanish GDP is calculated to be around €3 trillion by 2050, as predicted by some studies ). Currently, Spain’s GDP exceeds 1.4 trillion euros, so that expenditure at current euros would exceed 383,670 million. The largest increase will occur between now and 2040, when it will reach 25.2% of GDP. The government has worsened its forecasts about the impact of aging on public spending. Less than a year ago, also in the 2022-2025 Stability Program update, it calculated that it would represent no more than 24.5% of GDP in 2050 and only 23.6% of GDP in 2040. The explanation for this deterioration in expenditures comes exclusively from pensions; in the rest of the expenditure related to the aging of citizens (health, long-term care, education) it retains the same weight over GDP. But pensions will grow by 1.7 percentage points relative to gross domestic product to reach 14.7% of GDP, while Brussels was told a year ago that it would remain at 13% of GDP in 2050. And that includes the projected impact of the reforms on revenue, which could reach 1.7% of GDP by 2050. The government calculates that spending will gradually increase as a percentage of GDP until it reaches 14.9% in 2046 and will decline in subsequent decades from that year as the baby boom generation disappears. In its forecasts, it takes into account the measures taken, such as the new revaluation rule based on the CPI, which has led to an 8.5% increase in contributing benefits this year, or the new reduction coefficients for early retirement. incentive for delayed retirement will delay the effective retirement age by 1.2 years in 2040. Healthcare spending will in turn account for 7% of GDP compared to the current 5.8% and long-term care spending will account for 0.8% % of GDP to 1.3%, the same numbers predicted last year. Finally, education expenditure will contract by 0.4 percentage point of GDP, mainly due to the lower number of young people expected for the coming decades due to Spain’s low fertility rates. Operating margins Another relevant element this year is the interest rate hikes that central banks are implementing to keep inflation under control. The stability program recognizes that the main risk of the proposed macroeconomic scenario is greater inflation persistence and a more pronounced tightening of financial conditions. The ministry led by Nadia Calviño assumes control of the second round effects of inflation. The main reason, the document says, is that corporate margins reached their pre-covid levels at the end of 2022, “so their evolution in the following quarters should be characterized by stability” due to effective competition and the reduction of prices. energy and other raw materials. In addition, the government will ensure that wages gradually restore purchasing power in the coming years. Following the bankruptcy of Silicon Valley Bank, the bailout of Credit Suisse and the likely bailout of the First Republic, the Spanish government is signaling that financial instability is a downside risk, albeit mitigated by the deep restructuring of the sector over the past decade, the reduced debt burden and the strengthening of regulation and supervision in recent years. However, he admits that the intense tightening of monetary conditions could cause periods of financial stress in the sector. And while delinquencies are low due to the decline in household and corporate debt in recent years, he points out the need to monitor the financial sector and the impact of rising interest rates on household and corporate finances. strengthen the financial sector. possible credit restrictions to companies.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
