In recent quarters, the Spanish economy has shown more resilience than expected amid the adverse international context. Moreover, the National Statistics Institute (INE) has revised upwards the growth profile of recent years and especially that of recent quarters. All this leads us to revise upwards our growth forecast for this year, from the 2.4% predicted in the previous scenario to 2.9%. For 2026, we continue to anticipate a slight slowdown in the growth rate, but we revise the forecast upwards by 0.1 pp, placing it at 2.1%.

Specifically, between 2022 and 2024, the growth of the Spanish economy was mainly supported by the foreign sector, especially tourism, and to a lesser extent by non-tourism services, public consumption and population growth driven by immigration. In 2025, the sources of growth have begun to shift towards domestic demand, a trend that is expected to continue in 2026.

Thus, we expect private consumption to maintain a dynamic growth rate, driven by lower interest rates, the recovery of household purchasing power – thanks to the normalisation of inflation and the strength of the labour market – and the gradual reduction of the savings rate. Investment will also continue to benefit from the lower interest rates, the good economic outlook and the support provided by NGEU funds. The data from the last three quarters already points to the beginnings of a new investment cycle, which could be here to stay. Both private consumption and investment have room for further growth: in Q2, private consumption was just 5.3% above the level of Q4 2019, while investment in capital goods was 5.1% higher, compared to 9.4% in the case of GDP. If we consider the population increase since 2022, the figures are even more striking: real per capita consumption in Q2 2025 only exceeds the pre-pandemic level by 1.0%. As for investment, much of the recovery has been driven by the general government and households: in Q2 2025, gross fixed capital formation in these sectors was 76.3% and 75.1% above the level of the end of 2019 in nominal terms, while in the case of non-financial corporations (NFCs) the increase was just 12.8%. If we consider that the gross fixed capital formation deflator has risen by 20.8% in the same period, in real terms the investment of NFCs remains well below the pre-pandemic level, so it still has a lot of room for recovery. It should be recalled that the NFC sector is the most investment-intensive, accounting for 72% of total investment in 2019.

Despite the good outlook, growth in 2025 and 2026 is expected to moderate as some of the supporting factors of recent years lose steam. These trends include the normalisation of tourism growth, the reduced momentum of public consumption and a moderation in expected population flows. Added to this is the persistent weakness of the European economy and the tariff hikes between the US and the EU. As a counterbalance, the construction sector could partially offset the slowdown in tourism. Given the growing gap between demand and supply in the real estate market, the construction of new housing is expected to accelerate in 2025 and 2026. This trend is already reflected in the data: new construction permits were up 13.3% year-on-year in the trailing 12 months to May 2025, compared to 3.5% in the same period last year.

In 2026, inflation is expected to continue to moderate and to reach an annual average of 2.0%, after foreseeably reaching 2.5% by the end of 2025. This trend will be driven by a reduction in energy inflation, once the effect of the normalisation of VAT on electricity applied in January 2025 has disappeared, as well as by a moderation in food prices. Moreover, the significant appreciation of the euro in 2025 – of more than 13% so far this year – will also contribute to this moderation.

On the other hand, the data published to date reveal a notable increase in employment, specifically of 2.7% year-on-year according to the Q2 labour force survey. In 2025, job creation is expected to remain dynamic, at around 2.5% for the year. For 2026, a slight moderation is anticipated, although the growth rate will remain high: employment is expected to increase by 2%, compared to the 1.6% previously predicted. Thus, the forecast for the unemployment rate has also improved and it is now expected to fall from 11.3% in 2024 to 10.4% in 2025, before foreseeably falling below double-digit figures in 2026 for the first time since 2007, reaching 9.7%.

On the real estate side, the housing market is currently enjoying a boom, driven by the reduction in interest rates, the improvement in purchasing power, population growth and strong demand from foreign buyers. Home sales reached 700,000 units in the 12 months to June 2025, almost 20% more than in the same period last year and the highest figure since 2007. Although supply is beginning to react, it is still not enough to begin reducing the housing deficit accumulated since 2021. This imbalance between supply and demand will continue to exert pressure on prices in the short and medium term. Therefore, we expect the growth of house prices to remain high in 2025 and 2026: an increase of 9.6% is expected this year and one of 6.3% next year.

The risks surrounding this scenario are multiple. The upside risks include the possibility that consumption and investment could grow more than expected, especially if uncertainty fades faster than expected and households and businesses also normalise their levels of savings more quickly. The NGEU funds could also have a greater impact or the rebound in residential investment could be stronger than expected. However, the main risks remain on the downside and are geopolitical in nature. Although the level of uncertainty over the US-EU trade war has eased, new episodes of tension cannot be ruled out. Moreover, the fall of the government in France and doubts surrounding the sustainability of its debt have increased the risks to financial stability. Finally, an escalation of the conflict in the Middle East could lead to a sharp rise in oil prices.