Bank of Spain lifts growth forecast, but household finances remain under pressure

Spain’s central bank on Tuesday upgraded its forecast for economic growth next year, underlining the country’s status as one of the euro zone’s strongest performers even as rising living costs continue to strain household budgets.

The Bank of Spain now expects the economy to expand by 2.9% in 2025, revising up its previous estimate of 2.6%. It projects growth of 2.2% in 2026 and 1.9% in 2027. ALSO READ: Brussels confirms Spain as EU’s economic engine, lifting growth forecast to 2.9% this year.

For many Spaniards, however, the recovery feels largely theoretical, as grocery bills remain high and wage growth has failed to fully offset inflation.

Even so, Spain stands out against the broader euro zone’s sluggish backdrop, buoyed by solid domestic demand, a resurgence in tourism and substantial inflows from European recovery funds. ALSO READ: Spain’s IBEX 35 hits all-time high, surpassing 2007 peak.

Rising population levels, driven by immigration, have also helped lift consumption and expand the labour force. ALSO READ: Spain’s population reaches all-time high of 49.4 million, driven by immigration.

The central bank said economic activity likely grew between 0.6% and 0.7% in the final quarter of this year, broadly in line with growth recorded during the summer. ALSO READ: IMF confirms Spain’s lead as fastest-growing advanced economy for two years in a row.

Inflation is forecast to slow to 2.1% in 2026 and 1.9% in 2027, down from an estimated 2.7% this year.

For millions of households, however, the issue is less about inflation easing than whether wages are finally closing the gap.

Persistently high food and housing costs, weak real wage recovery and a labour market dominated by low-productivity service jobs mean many families feel worse off than before inflation peaked in 2022 as pandemic disruptions faded.

Although nominal wages have risen, real earnings in Spain remain below pre-pandemic levels — unlike in many neighbouring EU and OECD countries, where purchasing power has fully rebounded.

Official data show that the median net monthly salary in Spain in 2024 stood at 2,001 euros. In major cities such as Madrid and Barcelona, average monthly rents for an entire apartment range between 1,200 and 2,500 euros, according to property website Idealista.

The OECD notes that Spain’s minimum wage exceeds 60% of the median wage on a net basis, meaning a large share of workers earn similar pay levels and only a small segment of the population is affluent.

While inflation has slowed, purchasing power remains eroded. Food prices in Spain are roughly 30% higher than in 2020, far outstripping wage increases over the same period, according to Bank of Spain figures.

Data from the National Statistics Institute (INE) show that between January and November, prices of basic goods surged, with eggs up 30%, coffee rising 17%, beef climbing 15.6% and chocolate increasing by more than 13%.

Economists say inflationary pressures have increasingly shifted away from energy toward domestic drivers, with prices in tourism and hospitality rising faster than the euro zone average as profit margins widen.

Prime Minister Pedro Sánchez acknowledged earlier this month that the Spanish economy was heading in the right direction, but household purchasing power remained fragile.

According to a Reuters report, Spain’s Economy Ministry said that repeated shocks since the 2008 financial crisis had fuelled a sense of economic insecurity that headline growth and employment figures failed to reflect.

It added that purchasing power between 2019 and 2024 increased about five times faster than during the previous expansion and said measures were being implemented to boost affordable housing. ALSO READ: Spain to spend €1.3 billion on ‘industrial construction of social housing’.

Economists warn, however, that without stronger productivity gains or faster wage growth, the gap between Spain’s macroeconomic performance and household finances may persist. ALSO READ: Spain’s unemployment rate rises slightly, even as number of people employed hits new record.