The Bank of Spain maintains 2026 economic growth forecast at 2.3% and raises inflation forecast to 3.6%.

(1) The Bank of Spain stated on Thursday that second-quarter economic growth is likely to be between 0.5% and 0.6% quarter-on-quarter, close to the 0.6% growth in the first quarter, continuing to outperform other major Eurozone economies. The central bank maintained its baseline forecast for full-year growth in 2026 at 2.3% (slower than the 2.8% rate in 2025), and kept its forecast for 2027 at 1.7%. (2) As one of the most visited countries in the world, Spain benefits from a booming tourism industry, domestic consumption, and immigration inflows, resulting in continued better economic performance compared to other European countries. The European Central Bank expects Eurozone GDP growth in 2026 and 2027 to be 0.8% and 1.2%, respectively. (3) However, the Bank of Spain pointed out that slower domestic demand growth is one of the reasons for the economic slowdown so far this year, while the positive contribution of external demand to GDP comes from a sharper decline in imports compared to exports. Due to rising energy prices caused by conflicts in the Middle East, the central bank raised its 2026 inflation forecast from 3% to 3.6%, and its 2027 forecast from 2.5% to 2.6%, while noting that if the conflict persists, the macroeconomic outlook will continue to face significant risks. (4) The central bank raised its 2026 budget deficit forecast from 2.3% to 2.4%, still lower than 2.5% in 2025, and expects next year's deficit rate to be 2.3%. The debt-to-GDP ratio is expected to be 98.9% by the end of this year, falling to 97.9% by the end of 2027. The above forecasts are valid as of May 27, before the preliminary US-Iran peace agreement was reached.