Real GDP is expected to remain strong in 2026, but to decelerate gradually over the forecast horizon, also on account of the adverse impact of the conflict in the Middle East. Economic growth is set to be largely driven by domestic demand, supported by robust labour market performance and by investment growth. HICP inflation is projected to pick up in 2026 to 3%, led by the surge in energy prices. The government deficit is set to stabilise in 2026 and fall to 2.0% in 2027. The debt-to-GDP ratio is forecast to drop below 100% over the forecast horizon.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 2.8 | 2.4 | 1.9 |
| Inflation (%, yoy) | 2.7 | 3.0 | 2.5 |
| Unemployment (%) | 10.5 | 9.9 | 9.6 |
| General government balance (% of GDP) | -2.4 | -2.4 | -2.0 |
| Gross public debt (% of GDP) | 100.7 | 99.6 | 98.9 |
| Current account balance (% of GDP) | 2.8 | 1.9 | 1.8 |
Economic activity to remain robust, albeit decelerating over the forecast horizon
In the first quarter of 2026, real GDP expanded by 0.6% q-o-q. This outturn was supported mainly by private consumption, paired with a decline in imports, resulting in a positive contribution from net exports. Despite the uncertain geopolitical environment and the drag exerted by elevated energy prices, economic activity is set to remain relatively buoyant in 2026. Real GDP is forecast at 2.4%, also favoured by a strong carry-over from 2025, before moderating to 1.9% in 2027.
Domestic demand is set to lead economic growth in 2026 and 2027, driven mainly by private consumption growth and investment growth. Consumer spending is expected to benefit from employment growth in a context of sustained inward migration and record-low household leverage. Similarly, the healthy financial position of non-financial corporations, together with the implementation of the RRP, are projected to sustain the positive development of fixed capital formation, particularly in construction- and intangible assets. Conversely, net exports are forecast to contribute negatively to GDP growth in 2026, reflecting the uncertain evolution of goods exports, before contributing broadly neutrally in 2027.
The main risks faced by the economy concern the potential weakening of tourism activity, notably affecting tourism inflows from long-distance destinations due to higher travelling costs and other travel-related disruptions. Heightened tensions could also dampen confidence further, leading to a sustained period of precautionary behaviour by the private sector, adversely weighing on business investment and private consumption growth.
Dynamic labour market and declining unemployment
Strong migration inflows are set to support a further expansion of the workforce and boost job creation this year. Still, following the strong performance of recent years, the labour market is projected to lose momentum, in line with the gradual deceleration of economic growth over the forecast horizon. The unemployment rate is projected to maintain its downward trend, albeit at a slower pace than in the past, as employment growth decelerates faster than labour force expansion. It is expected to fall below 10% in 2026 – for the first time since 2008 – at 9.9% and to 9.6% in 2027.
Inflation to rise this year due to higher energy prices
HICP inflation is projected to edge up in 2026, reaching 3%, driven by the sharp increase in energy prices and the gradual pass-through to food and industrial good prices. This is set to compound with continued price pressures on services, leading to a robust evolution of underlying inflation in the coming quarters and throughout 2027. Headline inflation is nonetheless set to decrease to 2.5% next year, as energy inflation gradually eases. The broad-based increase in prices, in a context of tight labour market, is set to put upward pressures on nominal wage growth, which is expected to grow above the inflation rate in both 2026 and 2027.
Government deficit to stabilise due to cost of policy measures
In 2025, the general government deficit fell to 2.4% of GDP, benefiting from strong nominal GDP growth, the lower impact of the one-off flood-related measures and the phase-out of the energy-support measures. VAT and personal income tax revenues (growing at around 10%) drove overall revenues, benefiting also from the package of measures approved in December 2024.
In 2026, the deficit is expected to stabilise at 2.4%. Revenues from direct taxation are set to remain strong, led by high growth in capital gains, the deferred rise in public wages from 2025 and the entry into force of the global minimum tax for multinationals firms. However, VAT and excise duties will be impacted by the measures approved in March to mitigate the effects of the conflict in the Middle East. These temporary actions include VAT reductions on fuels, electricity, and gas, the reduction in the special tax for hydrocarbons and the suspension of the tax on the value of electricity production (with an overall expected impact of 0.2% of GDP). On the expenditure side, the package included support measures for farmers, professional transport operators, electro-intensive firms, and vulnerable households, with an impact estimated at 0.1% of GDP. Additionally, the government adopted a set of one-off measures to alleviate the consequences of the floods in Andalusia and Extremadura, with an expected impact of 0.3% of GDP. Overall, the positive revenue developments are set to compensate for the different sets of measures.
In 2027, the government deficit is forecast to decline to 2.0% of GDP, driven by the lower cost of the flood-related emergency measures and the assumed expiry of the energy-support measures. Along with the higher revenues from direct taxation and social security contributions, they will more than offset increases in defence spending, interest payments and pensions. After an expansionary fiscal stance in 2026, fiscal policy is set to become contractionary in 2027 following the end of the RRF implementation period.