Spain’s central bank has maintained its economic growth forecasts while raising its inflation outlook, warning that higher energy prices linked to the conflict in the Middle East could weigh on the country’s economic prospects.
The Bank of Spain said on Thursday that the economy likely expanded by between 0.5% and 0.6% in the second quarter compared with the previous three months, broadly matching the 0.6% growth recorded in the first quarter. That performance continues to place Spain ahead of many of its major eurozone counterparts.
The central bank left unchanged its forecast for full-year economic growth in 2026 at 2.3%, following an expansion of 2.8% last year. It also maintained its projection for 2027 growth at 1.7%. ALSO READ: Confirmed: Spanish economy grew 2.8% in 2025, roughly double eurozone average.
Spain has consistently outperformed much of Europe in recent years, supported by strong tourism, robust domestic consumption and continued immigration. By comparison, the European Central Bank expects the eurozone economy to grow by just 0.8% in 2026 and 1.2% in 2027.
Despite the resilient outlook, the Bank of Spain noted some signs of slowing momentum. Domestic demand has weakened so far this year, while the positive contribution from the external sector has largely reflected imports falling faster than exports rather than stronger overseas sales.
The central bank’s most significant revision concerned inflation. It now expects inflation to reach 3.6% in 2026, up from its previous forecast of 3.0%, while its projection for 2027 has been raised slightly to 2.6% from 2.5%. ALSO READ: Spain inflation jumps to 3.3% in March as Iran war sends fuel prices higher.
According to the bank, the higher forecast reflects rising energy costs linked to the conflict in the Middle East and ‘a context of partial pass-through’ of those increased prices into the wider economy.
The inflation revision comes despite recent developments that may ease pressure on energy markets. The bank noted that the agreement reached between the United States and Iran has improved prospects and reduced some of the risks surrounding future energy prices.
The latest projections were based on information available up to 27 May, before the preliminary peace agreement between Washington and Tehran was announced.
Prime Minister Pedro Sánchez’s socialist (PSOE) government unveiled a package of measures worth five billion euros in March aimed at helping households and businesses cope with the economic consequences of the conflict. ALSO READ: Spain unveils €5bn emergency package to offset energy shock from Middle East conflict.
The Bank of Spain cautioned that significant risks to the economic outlook remain if tensions in the Middle East persist.
On the public finances front, the central bank slightly increased its forecast for Spain’s budget deficit in 2026 to 2.4% of GDP, compared with a previous estimate of 2.3%. Even so, the deficit would remain below last year’s level of 2.5%. The deficit is expected to narrow further to 2.3% in 2027.
Meanwhile, Spain’s debt-to-GDP ratio is forecast to fall gradually, ending this year at 98.9% before declining to 97.9% by the end of 2027.
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