The budget deficit in Spain reduced to 6.76% of GDP in 2021, from over 10% the year before, surpassing forecasts from the government and global organisations, which predict a further decline in 2022, despite the challenges.

Budget Minister Maria Jesus Montero stated: “At present, with all due caution, the government should be able to meet the deficit target of 5%.”

Initially the government had aimed for an 8.4% budget deficit in 2021, with the Minister adding the lower result “allows us to better face the challenges from the war in Ukraine.”

Since Russia invaded Ukraine and the subsequent sanctions, energy prices have soared to all-time highs throughout Europe, fuelling overall inflation and weakening confidence, Reuters reports.

In addition, tax collection surged 15.1% last year, permitting the government to meet its revenue forecast for the first time in a decade. The Budget Minister added that so far this year, revenue data was positive. She said that increased social security payments fuelled by new jobs and minimum wage increases had helped to bolster tax receipts.

The government said the narrower deficit was down to a stronger economy as it rebounded from 2020’s record slump due to the pandemic, and disregarded the impact of elevated prices on the improved revenue collection.

In 2021, inflation in Spain hit 6.5%, whilst electricity prices rose by 72%. In March, year-on-year inflation reached 9.8%, the highest since 1985, the Reuters report goes on to add.

The country’s economic outlook will be reviewed, to take into account the effect of the war in Ukraine, by the end of this month. Up to now, the government has said growth would not make the present 7% target for 2022.

Moreover, the Funcas think tank has downwardly revised its growth forecast to 4.2%, which would considerably lower the odds of Spain reaching pre-pandemic levels in terms of economic activity this year.