Canary Islands Economic Growth Projections Diverge from AIReF Estimates

The Government of the Canary Islands has unveiled its latest budget forecasts, which have garnered validation from the Independent Authority for Fiscal Responsibility (AIReF). However, a closer examination reveals significant differences in the economic growth predictions made by these two entities, raising questions about the region’s financial outlook.

AIReF’s Endorsement and Economic Outlook

AIReF has officially endorsed the budget forecasts prepared by the Canary Islands government, affirming the region’s financial planning and fiscal responsibility. Despite this endorsement, the AIReF report highlights notable discrepancies between its economic projections and those of the regional government. While AIReF’s outlook tends to be more optimistic, the Canary Islands government appears to adopt a more cautious stance regarding macroeconomic growth.

During a recent presentation of economic data for the initial two years of the current legislative term, Manuel Domínguez, the Minister of Economy, Industry, Trade and Self-Employment, indicated an anticipated economic slowdown beginning in 2026. This perspective contrasts with the Chamber of Commerce of Santa Cruz de Tenerife, which characterized the trend as a deceleration rather than a full-blown slowdown, suggesting a more nuanced view of the economic landscape.

Contrasting Growth Predictions

AIReF’s analysis reveals a stark contrast in growth expectations. The Canary Islands government anticipates a growth rate of 2.9% for 2025, while AIReF estimates it at a higher 3.4%. For the following year, 2026, the regional government forecasts a growth of 1.9%, whereas AIReF raises its prediction to 2.3%. This divergence continues, with the Canary Islands projecting a modest increase of 0.9% for both 2027 and 2028, compared to AIReF’s more optimistic forecasts of 1.7% and 1.6%, respectively.

The gradual decline in growth rates is attributed to a deceleration in economic activity, which is linked to reduced growth potential in the aftermath of the COVID-19 pandemic. AIReF notes that the Canary Islands’ forecasts fall within the lower spectrum of its central estimates and are less optimistic than those from other forecasting agencies, raising concerns about the region’s economic resilience.

Price Variations and Employment Trends

Another critical aspect of the report is the differing predictions regarding the GDP deflator, which measures price changes in the economy over time. The Canary Islands government anticipates a GDP deflator growth of 3.1% in 2025, tapering to 1.8% in 2026, and then increasing to 2.3% and 3.3% in 2027 and 2028, respectively. In contrast, AIReF projects more stable growth rates of 2.3% and 2.2% for the same years, indicating a potential divergence in expectations regarding inflation and price stability.

This suggests that the Canary Islands government holds a more pessimistic view on future price developments, indicating potential price increases post-2026, which could further complicate the economic landscape. In terms of employment, the forecasts also reflect a conservative approach, with the regional government predicting a 2.1% growth in 2025, followed by 1.1% in 2026, and further declines to 0.5% in 2027 and 0.4% in 2028. AIReF, however, expects employment growth rates of 3.1% in 2025, 2.1% in 2026, 1.6% in 2027, and 1.5% in 2028, illustrating a more robust outlook for job creation.

AIReF emphasizes that the macroeconomic forecasts for autonomous communities are made amid considerable uncertainty and geopolitical risks. This uncertainty poses challenges for accurate forecasting of the macroeconomic landscape and budget planning for autonomous regions, which could affect compliance with national and European fiscal regulations. The contrasting predictions between the two entities underscore the complexities of economic forecasting in a post-pandemic world.

Key points

• AIReF supports the Canary Islands government’s budget forecasts despite notable discrepancies.
• The Canary Islands government predicts a growth rate of 2.9% for 2025, while AIReF estimates it at 3.4%.
• For 2026, the regional government expects 1.9% growth, compared to AIReF’s 2.3% forecast.
• Canary Islands forecasts for 2027 and 2028 are 0.9%, while AIReF predicts 1.7% and 1.6%, respectively.
• The GDP deflator growth predictions differ, with the Canary Islands forecasting higher rates than AIReF.
• Employment growth forecasts show a more conservative outlook from the Canary Islands compared to AIReF.
• AIReF highlights the high uncertainty affecting macroeconomic forecasts for autonomous communities.