The Bank of Spain reported that Spain's economy likely expanded by 0.5% to 0.6% in the second quarter compared with the previous three months, a period that had seen growth of 0.6%.
In its set of macroeconomic projections, the central bank maintained its baseline forecast for annual growth in 2026 at 2.3%, down from the 2.8% expansion recorded last year. The forecast for 2027 remained at 1.7%.
The bank highlighted that Spain has been a relative outperformer among European economies, driven in part by robust tourism, persistent domestic consumption and immigration. For comparison, the European Central Bank projects euro zone GDP growth of 0.8% in 2026 and 1.2% in 2027.
Despite the overall expansion, the Bank of Spain noted a noticeable slowdown in domestic demand during the current year. At the same time, the external sector made a positive contribution to GDP growth because imports fell more sharply than exports.
On prices, the central bank revised its inflation forecast upward to 3.6% for 2026, from a prior projection of 3.0%, and to 2.6% for 2027, from 2.5%. The institution cited higher energy prices linked to the war in the Middle East as the principal factor behind the upward revisions.
The Bank of Spain also warned that the macroeconomic outlook faces substantial risks should the conflict persist. The published projections were finalized on May 27, before a preliminary peace deal was reached between the United States and Iran.
On public finances, the central bank's forecast for the 2026 budget deficit was raised slightly to 2.4% of GDP from 2.3%, though this remains narrower than last year’s deficit of 2.5%. The deficit is projected to fall to 2.3% in 2027. The debt-to-GDP ratio is expected to end the current year at 98.9% and to decline to 97.9% by the end of 2027.
Summary and implications
- Growth: Q2 quarter-on-quarter growth is placed at 0.5%-0.6%, with full-year 2026 GDP forecast held at 2.3% and 2027 at 1.7%.
- Inflation: Forecasts were raised to 3.6% in 2026 and 2.6% in 2027, with higher energy prices cited as the driver.
- Public finances: The 2026 budget deficit forecast edged up to 2.4% of GDP and government debt is expected to fall slightly by end-2027.
This set of projections underscores a mix of continuing growth momentum alongside softer domestic demand and elevated price pressures tied to energy costs. Key sectors highlighted by the bank's assessment include tourism and domestic consumption, while energy markets and public finances are central to the inflation and fiscal outlooks laid out in the projections.