Real GDP growth is expected to remain strong in 2025, at 2.9%, moderating gradually afterwards. Economic activity is set to be driven by domestic demand, supported by continued strong labour market performance upholding private consumption, and by the contribution of investment. Headline inflation is projected to ease from 2.5% in 2025 to 2.0% in 2026. The general government deficit is set to keep decreasing from 2.5% of GDP in 2025 to 2.1% in 2027, helped by the tax package adopted last year, the phase-out of energy measures and favourable economic developments. The debt-to-GDP ratio is set to decline further and move below 100% next year.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 2.9 | 2.3 | 2.0 |
| Inflation (%, yoy) | 2.6 | 2.0 | 2.0 |
| Unemployment (%) | 10.4 | 9.8 | 9.6 |
| General government balance (% of GDP) | -2.5 | -2.1 | -2.1 |
| Gross public debt (% of GDP) | 100.0 | 98.2 | 97.1 |
| Current account balance (% of GDP) | 2.7 | 2.7 | 2.7 |
Economic activity to remain robust
Following strong growth in the first half of 2025, economic expansion continued in the third quarter as GDP reached 0.6% q-o-q. This outturn was supported by the strong contribution of private consumption and investment, while net exports contributed negatively to GDP due to the decline of exports and sustained import growth. Economic activity is expected to remain robust over the forecast horizon, with real GDP growth recording 2.9% in 2025, also reflecting a higher than anticipated carry-over from 2024. Real GDP growth is expected to moderate gradually to 2.3% in 2026 and to 2.0% in 2027.
Domestic demand is set to be the key driver of growth over 2025-27, mainly steered by private consumption and the positive performance of investment. Consumer spending is expected to benefit from further purchasing power gains and additional employment growth in a context of sustained inward migration. The healthy financial position of non-financial corporations, together with the continued implementation of the RRP, is expected to sustain the contribution of gross fixed capital formation. Conversely, net exports are expected to contribute slightly negatively to GDP growth in 2025 and 2026, due to a less buoyant evolution of exports and to sustained import growth, before turning marginally positive in 2027.
The main risks facing the economy relate to potential spill-over effects resulting from the weaker-than-expected economic activity by Spain’s key trading partners. This could adversely affect the evolution of tourist activity and prompt a prolonged period of precautionary behaviour by the private sector, delaying corporate investment or keeping the household saving rate well above its long-term historical average. Domestically, a more-pronounced-than-anticipated slowdown of migration flows could reduce the dynamism of the labour market, resulting in a less favourable outlook for private consumption and investment.
Dynamic labour market and declining unemployment
The positive labour performance of recent years is projected to continue throughout the forecast period. The expected employment gains are mainly attributable to continued migration inflows, which are considerably expanding the labour force and boosting the pace of job creation. The unemployment rate is projected to maintain its downward trend, reaching 10.4% in 2025 and falling below 10% in 2026 and 2027. These levels have not been seen in more than ten years, but still remain among the highest in the EU.
Inflation to ease further over the forecast horizon
HICP inflation is projected to slow down further, reaching 2.6% in 2025 and 2.0% in 2026, driven by the moderation of food prices, and to a lesser extent services, which are expected to ease more gradually in line with slower real wage growth. Nonetheless, nominal wage growth is forecast to remain above the inflation rate in 2025, with real income gains moderating over the next two years. In 2027, HICP is set to stabilise at 2.0%.
Government deficit and debt keep decreasing
In 2024, the general government deficit fell to 3.2% of GDP, benefiting from strong economic growth and lower costs of the energy-related measures. These developments more than compensated for the impact of the emergency one-off measures related to the floods in the Valencian community which added some 0.4% of GDP to the general government deficit.
In 2025, the deficit is expected to keep decreasing due to the phase-out of the energy-related measures and the lower impact of the one-off flood-related measures, although partly offset by an increase in interest payments and defence expenditure. Revenues are also set to increase following tax measures approved in December 2024, including amendments to corporate income tax, additional taxes on electronic cigarettes and other tobacco-related products and an increased tax rate on personal incomes from financial assets. Overall, for 2025 the general government deficit is projected to decrease to 2.5%.
In 2026, the government deficit is forecast to decline further to 2.1% of GDP, despite higher interest and pension expenditure. This decline is driven by the expiry of the flood-related emergency measures as well as the favourable impact of the global minimum tax for multinationals. In 2027, the deficit is set to stabilise at 2.1%, as the higher spending in defence and pensions is offset by higher revenues from direct taxation and social security contributions. After a slightly expansionary fiscal stance in 2025-2026, fiscal policy is set to become contractionary in 2027 following the end of the RRF.
The debt-to-GDP ratio is expected to keep falling to 100.0% in 2025, thanks to nominal GDP growth outpacing the cost of debt servicing. Driven by the deficit reduction, the ratio is set to keep decreasing in 2026 and move below 100% for the first time since 2019. In 2027, the debt is expected to keep narrowing, helped by sustained economic growth.