OECD Economic Outlook, Volume 2025 Issue 2

Spain

Economic growth is projected to ease from 2.9% in 2025 to 2.2% in 2026 and 1.8% in 2027. Strong job creation and real wage growth will continue to support private consumption. Investment growth will be underpinned by ongoing implementation of the Recovery, Transformation and Resilience Plan (RTRP) and lower financing costs. Export growth will moderate due to softer demand from key trading partners and a gradual normalisation of tourism. Inflation will decline to 2.3% in 2026 and 1.8% in 2027.

The fiscal deficit is projected to narrow to 2.3% in 2026–27, supported by robust economic growth and stronger revenue performance. Given the growth momentum in 2025, an almost closed output gap, support from NGEU grants and monetary policy easing, there is room for Spain to accelerate the pace of deficit reduction to faster rebuild fiscal buffers to respond effectively to future shocks. Streamlining administrative and regulatory burdens, better aligning national, regional, and local regulations, and simplifying procedures for accessing and refunding public R&D support would help improve investment and productivity growth.

Activity remains strong

Real GDP grew by 2.8% year-on-year in the third quarter of 2025, driven by robust gross capital formation and private consumption. Social security affiliations grew at a year-on-year rate of 2.4% in October, while the unemployment rate declined to 10.5% in September. Strong job creation and nominal wage growth supported steady gains in gross disposable incomes. Business expectations continued to improve in the third quarter of 2025. Headline inflation rose to 3.2% in October, largely driven by higher electricity prices while the partial extension of transport subsidies helped offset some of the increase. Core inflation reached 2.9% in October, with persistent services price inflation.

Spain

Source: Instituto Nacional de Estadistíca; and Eurostat.

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Spain: Demand, output and prices

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Credit to non-financial private businesses has expanded, following monetary easing. Housing credit to households and credit to firms increased by 2.9% and 2.3% respectively year-on-year in September 2025. Spain’s trade deficit widened in the first half of the year, with imports growing faster than exports due to strong domestic demand and elevated trade uncertainty. Tourism exports continue to grow, though at a slower pace. Direct exposure of Spain to US tariffs remains limited, with exports of goods to the United States accounting for only 1.1% of GDP. However, Spain is exposed to any weakening of demand from its main European trading partners.

Fiscal consolidation will continue

The fiscal deficit will narrow to 2.5% of GDP in 2025 due to higher economic growth and stronger‑than‑expected revenues. Most of the temporary support measures introduced during the inflationary shock have been phased out, while targeted public transportation subsidies were extended to December 2025. The deficit is projected to narrow further in 2026 and 2027 towards 2.3% of GDP, largely reflecting the withdrawal of support following the floods in the Valencia region, higher revenue from strong job creation and solid economic growth. As a result, public debt will gradually decline throughout 2026‑2027. There will be a gradual increase in defence spending in 2025 and 2026 to reach 2% of GDP.

Growth will moderate but remain robust

GDP is projected to grow by 2.9% in 2025, 2.2% in 2026 and 1.8% in 2027, supported by strong domestic demand. Private consumption will grow on the back of solid job creation, real wage growth and better financial conditions. Business and household investment will expand thanks to lower interest rates and the continued deployment of RTRP funds before decelerating by 2027, as the funds wind down. Export growth will slow due to weaker demand from key trading partners, and a moderation in the expansion of tourism. Inflation is projected to ease throughout 2026 and 2027 as food and underlying price pressures moderate. Global financial tightening and escalating geopolitical and trade tensions could weigh on private investment, dampening external demand and implying both lower growth and lower inflation. Elevated saving rates pose an upside risk to growth by supporting future spending and investment.

Strengthening fiscal sustainability and unlocking stronger productivity growth

Spain’s public debt-to-GDP ratio has decreased since 2021, yet it remains elevated. Accelerating the pace of deficit reduction would help to rebuild fiscal buffers. Solid growth, the almost closed output gap, the expected support from NGEU funds and the monetary policy easing would facilitate this acceleration. Long-term fiscal pressures are projected to rise, driven primarily by population ageing and rising pension costs. Addressing such pressures requires stemming the rise in pension spending, reducing inefficient spending and improving tax revenues. Unlocking stronger investment and productivity growth hinges on creating a more supportive business environment by reducing the high administrative and regulatory burden, which is particularly costly for SMEs, while aligning national, regional and local regulations to enhance coherence and reduce duplication. Simplifying application and refund procedures to public R&D support through a “one-stop-shop” digital platform can help firms to innovate and scale up.