OECD Economic Outlook, Volume 2025 Issue 1

Spain

Real GDP growth is projected at 2.4% in 2025 and 1.9% in 2026. Growth will be driven by domestic demand, with consumption supported by a robust labour market, real income gains and falling inflation. Investment is expected to rise over 2025-26 supported by lower financing costs and the implementation of the Recovery, Transformation and Resilience Plan (RTRP). Export growth will slow, reflecting weak demand in trading partners, rising trade fragmentation and the dampening effect of US tariffs. Risks to economic growth are skewed to the downside, including escalating geopolitical and trade tensions, further tariff increases on EU exports, increased uncertainty, and tighter global financial conditions.

The fiscal deficit is expected to narrow to 2.8% of GDP in 2025 and 2.3% in 2026, helped by robust economic growth. In 2026, lower spending growth due to the phase-out of public transportation subsidies and DANA support measures will back further consolidation efforts, placing gross public debt on a downward trend. Lowering entry barriers in services, further streamlining regulations at all levels of government, and accelerating public-private partnerships under the RTRP would boost investment and potential growth.

Economic activity remains strong

Growth reached 2.8% year-on-year in the first quarter of 2025, driven by robust gross capital formation and private consumption. A strong labour market and wage growth supported steady gains in real disposable incomes. Social security affiliations rose by 2.3% over the year to April 2025, while the unemployment rate reached 10.9% in March 2025. Business expectations continued to signal expansion in April, though with signs of moderation. Annual headline inflation eased to 2.2% in April 2025 due to lower energy prices, following a temporary rise earlier in the year linked to the expiration of VAT reductions on electricity. Core inflation stood at 3.0% in April, largely driven by more persistent services inflation.

Spain

Source: Eurostat; and OECD Economic Outlook 117 database.

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Spain: Demand, output and prices

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Housing credit to households and credit to firms grew by 1.4% and 1.5%, respectively, over the year to March 2025, supported by monetary easing. In February, the goods trade deficit widened, with import growth of 3.5% year-on-year while exports grew by just 0.4%. Meanwhile, the services surplus increased to 6.7% of GDP, supported by a rise in tourism. The United States has imposed a 10% import tariff on EU goods, but Spain’s direct exposure is limited, as Spanish goods exports to the United States only represented around 1% of GDP in 2024.

Fiscal consolidation continues

The fiscal deficit will narrow to 2.8% in 2025, and 2.3% in 2026, from 3.2% in 2024, helped by mild fiscal consolidation. Most of the temporary support measures introduced during the inflationary shock have been phased out, including the planned expiration of public transportation subsidies by June 2025. The consolidation is underpinned by higher revenues from strong job creation and previously announced tax measures. Spending declines reflect the phase-out of energy related and DANA support measures. The projections also incorporate a gradual increase in defence spending in 2025 and 2026, and government initiatives to help sectors affected by trade tensions, amounting to EUR 14 billion (0.9% of GDP), with most support channelled through guarantee schemes and loans.

Domestic drivers support growth as external risks rise

GDP growth will remain robust but gradually moderate, reaching 2.4% in 2025 and 1.9% in 2026. Growth will be driven by domestic demand, supported by a solid labour market, real income gains, and high household savings. Disbursements of the RTPR funds and lower interest rates will support investment, though execution delays and tighter global financing conditions could limit the rebound. Export growth is expected to slow due to weak demand in key trading partners and the recently imposed 10% effective US tariff on EU goods and sector-specific rates as high as 25% on autos and steel. While Spain is less active in these sectors than other EU countries, exports of machinery and agri-food products may still be affected. Headline inflation will reach 1.9% in 2026, aided by lower food and energy prices and limited wage pressures. Downside risks remain elevated, particularly from escalating geopolitical and trade tensions, which could further dampen external demand, increase uncertainty, and delay investments linked to the RTPR.

Enhancing potential growth and meeting fiscal goals is key

Although the fiscal deficit and public-debt-to-GDP have declined, continued consolidation remains essential to put gross public debt on a downward trend, comply with the EU fiscal rules and accommodate rising spending pressures from population ageing and the green transition. Gradually broadening the value added tax base, increasing environmental taxes, and improving public spending efficiency would support consolidation efforts and create space for growth-enhancing spending. Gross fixed capital formation per working-age person has remained significantly below the European average since the global financial crisis, and the recovery in investment has been slow since the pandemic. Lowering entry barriers in services, further streamlining and levelling regulations across levels of government, and accelerating public-private partnerships under the RTRP, would further stimulate investment and raise potential growth.