The Bank of Spain revises upwards its growth and inflation forecast for 2025 and 2026
The Bank of Spain (BdE) updates growth forecasts with an upward revision of the GDP forecast for 2025, 2026 and 2027. The institution led by José Luis Escrivá now foresees that the Spanish economy will experience an expansion in activity this year of 2.9%, which represents an increase of three tenths with respect to the September projection, while at the same time reviewing four tenths plus the figure for next yearwhen it anticipates 2.2%, and thus equals those of the Government. Growth would moderate to 1.9% the following year, which, in any case, is two tenths above what was previously estimated.
The BdE includes a scenario of gradual deceleration towards rates “closer to the potential growth of the Spanish economy“, around 2% after growing by 3.5% in 2024. GDP growth is supported by domestic demand and, in particular, private consumption and investment, thus counteracting the slowdown in net external demandwhich is expected to be negative until entry in 2027. These two factors thus emerge as the main drivers of activity, especially private consumption, the component with the greatest contribution to growth, which is driven by the disposable income of households, employment and the arrival of immigrants to Spain.
On his side, the gross capital formation would maintain a “robust” path in the coming years in the heat of the deployment of European funds, more favorable financing conditions given the reduction in interest rates and the increased activity in the construction sectoralthough it will progressively lose steam. The BdE updates its macroeconomic picture after the European Central Bank (ECB) has also revised upwards the evolution of the eurozone. If a few months ago I calculated a growth of 1.2%; 1%; and 1.3%, respectively, are now 1.4%, 1.2% and 1.4%.
In this context of greater activity, the BdE anticipates a reduction in volume of public debt with respect to GDP for the coming quarters, being 100.6% at the end of 2025. We would have to wait twelve months for will fall to 99.1% and 98.3% in 2027. The last time this barrier was touched was at the end of 2019, just before the outbreak of the Covid-19 pandemic, which forced administrations to skyrocket public spending. As a consequence of the improvement in the macroeconomic environment, the public administration deficit will fall from 2.5% this year to 2.1% next year, in line with the goal committed to the European Commission.
A year later the public deficit would rise again within 24 months, within the framework of the multi-year salary agreement reached between the Government and public employee unions. Compared to the previous projection exercise – which contemplated an assumption of an inertial increase of 2% in all years -, The new agreement involves greater spending: of 0.05 percentage points of GDP in 2025, being practically zero in 2026 and 0.37% in 2027.
Inflation will also be higher
Greater growth also entails a higher inflation rate for the following quarters. If in the current year you expect the CPI to close at 2.7%, two tenths more, by 2026 it will be 2.1%four tenths above, while it will fall by half a percentage point, to 1.9%. Although the forecasts are in line with those of other organizations such as the National Institute of Statistics (INE), in terms of inflation they are somewhat more optimistic.
Escrivá had already commented a few days ago on this improvement, which confirms the resilience and dynamism of the Spanish economy. In the document they warn that the evolution of the commercial and geopolitical context presents “many unknowns”, which suggests that the degree of uncertainty economic will continue to be “high” during the coming months, although the risks for activity remain balanced in the short term and “slightly” downward in the medium term due to the agreements signed between the United States and its partners on trade matters.
