Real GDP growth is expected to remain robust in 2025, reaching 2.6%, and to soften in 2026 to 2.0%. Economic activity is set to be supported by domestic demand, owing to continued strong labour market performance upholding private consumption growth and the projected strengthening of investment, also thanks to the implementation of the recovery and resilience plan. Headline inflation is projected to ease to 1.9% in 2026. The general government deficit is set to decrease to 2.8% of GDP in 2025 and 2.5% in 2026, driven by the phase-out of energy-related support and the withdrawal of temporary measures introduced in response to the devastating floods in Valencia. The debt-to-GDP ratio is set to decline to 100.9% in 2025 and then to broadly stabilise in 2026.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 3,2 | 2,6 | 2,0 |
| Inflation (%, yoy) | 2,9 | 2,3 | 1,9 |
| Unemployment (%) | 11,4 | 10,4 | 9,9 |
| General government balance (% of GDP) | -3,2 | -2,8 | -2,5 |
| Gross public debt (% of GDP) | 101,8 | 100,9 | 100,8 |
| Current account balance (% of GDP) | 3,1 | 2,7 | 2,8 |
Economic activity to remain robust
Economic activity in 2024 expanded by 3.2%, underpinned by the strong increase of consumption and by the positive contribution of net external demand. The economic expansion continued in the first quarter of this year, with GDP edging up by 0.6%. This outturn was supported by investment and private consumption growth and, to a lesser extent, by net exports. Real GDP growth is expected to attain 2.6% in 2025 overall, also reflecting a high carry-over from 2024, and to decelerate to 2.0% in 2026.
Domestic demand is set to remain the key driver of economic growth over the forecast period, driven by private consumption and the projected pickup in investment, whilst - amidst rising trade tensions - the contribution from net exports is expected to be negative in both years. Consumer spending would be upheld by further, yet moderating, real wage gains coupled with further employment growth in a context of sustained but decelerating inward migration. Policy uncertainty surrounding global trade and tariffs is set to weigh on private investment growth, even if the direct exposure of the Spanish economy to the US in terms of exports of goods and non-tourism services remains limited overall. Nonetheless, the healthy financial position of non-financial corporations, together with the continued implementation of the RRP, is expected to sustain the pick-up of gross fixed capital formation, benefitting also by the lower short-term interest rates environment. On the external demand side, the less buoyant evolution of total exports together with the recovery of import growth is expected to lead to a marginally negative contribution of net exports to GDP growth in 2025 and 2026.
Downside risks to the outlook relate mainly to the larger than expected slowdown of economic activity in the euro area and in Spain’s main trading partners, particularly those with a relatively high exposure to US markets. This could generate negative spill-over effects on activity in Spain, by further disrupting access to export markets, prompting a prolonged precautionary behaviour by the private sector delaying corporate investment and further upholding the household saving rate above its long-term historical average.
Dynamic labour market and declining unemployment
The robust performance of the labour market observed in 2024 continued in the first quarter of this year. Employment growth is expected to expand by 2.1% in 2025, underpinned mainly by continued immigration flows. The unemployment rate is projected to steadily decline to slightly below 10% in 2026, down from 11.4% in 2024, supported by additional job creation and a moderation in the total labour force growth compared to recent years.
Inflation to ease further over the forecast horizon
Annual HICP inflation averaged 2.9% in 2024 and is projected to continue its slowdown in 2025 driven mainly by the deceleration of energy prices, while price pressure related to services is set to ease more gradually. Headline inflation is projected to reach 2.3% in 2025, before easing further to 1.9% in 2026. Nominal wage growth is set to keep growing above the inflation rate in 2025, though real wage gains are set to moderate over the forecast horizon.
Government deficit to keep decreasing
In 2024, the general government deficit diminished by 0.3 pps. to 3.2% of GDP, benefiting from strong economic growth, favourable labour market developments and lower costs of the energy-related measures. Tax revenues grew by 8.4%, driven by buoyant direct taxation, including corporate tax revenues that increased by 11.5%, reflecting robust corporate profits. However, on the expenditure side, the impact of the emergency one-off measures related to the floods in the Valencian community added some 0.4% of GDP to the general government deficit.
In 2025, the deficit is expected to keep decreasing driven by the phase-out of the energy-related measures and by the lower impact of the flood-related one-off measures, partly offset by an increase in interest payments and defence expenditure. Revenues are also set to be boosted by new 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, the general government deficit is projected to decrease to 2.8%.
Based on unchanged policies, the government deficit is forecast to decline further to 2.5% of GDP in 2026, despite slightly higher interest 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 multinational groups.
The debt-to-GDP ratio is set to keep falling and settle below 101% in 2025, thanks to nominal GDP growth outpacing the cost of servicing debt. The ratio is set to broadly stabilise in 2026, as the interest-growth rate differential turns less favourable.