Spain’s medium-term fiscal outlook

Spain's public debt is reaching nearly 100% of GDP, and assuming average funding costs climb up towards 4-5%, once the ECB stance normalizes, the primary fiscal balance would need to reach at least +1% of GDP in order to stabilize public debt-to-GDP. 

The primary fiscal balance would need to reach at least 1.5% of GDP to more decisively set public debt-to-GDP on a downward trajectory, which means that next government will need to deliver a fiscal swing of around 3pp of GDP as the overall primary balance of 2015 is likely to stand around -1.4% of GDP.

According to Barclays, 

• Spain's medium-term fiscal outlook is expected to be determined by growth and inflation prospects and, to a large extent, by the medium-term fiscal stance of the next government.
  
  
• Spain's real GDP growth in long term is likely to converge towards 1.5% and inflation towards 2%.
  
  
• The real growth of 2.8% is expected in 2016 and inflation at 0.5%, although we flag downside risks to the range of 0.4pp due to weaker oil prices.

As the public debt is yet to reach around 100% of GDP by end of the year, the funding costs are becoming main contributor to the dynamics of public sector debt.