The Banco de España lifts its growth forecasts for 2026 and 2027. Domestic demand is holding up, but higher energy costs are pushing inflation further from the European Central Bank’s target.
Spain’s latest economic projections put household demand at the centre of the recovery. The Banco de España has lifted its growth forecast to 2.6% for 2026 and 2.2% for 2027. Average inflation is now expected to reach 3.9% and 3.7% respectively. According to the central bank’s third-quarter macroeconomic projections, those inflation forecasts are 0.3 and 1.1 percentage points higher than in June, respectively.
The upgrade rests on domestic demand rather than foreign trade. Consumption and investment are expected to add three percentage points to growth this year, while the external sector subtracts four tenths. Gross domestic product could expand by around 0.6% in the third quarter compared with the previous quarter.
The Banco de España links the improved outlook to stronger-than-expected activity in the second quarter and more favourable expectations for the third. Domestic activity is also expected to remain resilient during the second half of 2026.
The Banco de España’s stronger growth outlook is linked to unexpectedly solid second-quarter activity and more favourable expectations for the third quarter, not to an improved contribution from foreign trade.
Private households are the forecast’s clearest engine.
Private consumption is projected to rise by 3% in 2026 before slowing to 1.9% in 2027. Public consumption would grow by 2.1% this year and 2% next year. Investment is also expected to moderate from 4.1% in 2026 to 2.8% in 2027. The end of the Next Generation EU programme and more expensive business credit are weighing on investment decisions.
Housing investment remains weaker than previously expected in 2026. New bank financing for construction points to stronger activity in 2027, but the Banco de España ties that prospect to structural constraints. Labour shortages and slow urban development remain obstacles. The country also lacks development-ready land.
Higher business credit matters for households and buyers as well. An earlier mortgage report offered a separate account of Spain’s financing conditions.
The improved growth outlook comes with a significant deterioration in the inflation outlook. Growth was revised up by 0.5 percentage points for 2027, while the inflation forecast was raised by 1.1 points; the 2026 inflation projection of 3.9% is almost twice the European Central Bank’s 2% medium-term target, and the 2027 forecast remains well above it.
Exports look more supportive than they did in the June projections. They are expected to grow by 2.4% in 2026 and 3.4% in 2027 after the forecasts were raised by 1.6 and 0.8 percentage points. Imports are projected to increase by 3.9% and 3.2% respectively. As import growth slows relative to the wider expansion, the external sector could add two tenths to GDP in 2027.
Energy is where the forecast turns sharply less comfortable.
The central bank says the inflation path depends heavily on the energy shock. Its projections assume higher oil and gas prices. They place the consumer price index near 5% at the end of the year after excluding the effect of fiscal measures on energy.
Inflation is expected to rise again at the start of 2027, when energy tax reductions and public transport discounts end. CaixaBank Research likewise identifies higher energy prices as the main reason for the upward inflation revision. It also points to the withdrawal of part of the fiscal support as an additional factor in 2027.
The Banco de España expects inflation to ease gradually after the start of 2027 as energy prices become more moderate and the high 2026 base takes effect.
Underlying inflation is expected to remain persistent. The measure excluding energy and unprocessed food is forecast to average 3.4% in 2026 and 3.5% in 2027. The price problem therefore extends beyond a temporary jump in fuel and gas costs. The figures point to continuing pressure in domestically generated components even as the energy shock fades.
The labour market continues to support activity, although an extraordinary regularisation process makes the latest signals harder to read. Employment growth is expected to slow to 2% in 2026 and 1.8% in 2027. Unemployment is forecast to fall to 10% and 9.7% respectively.
Public finances improve on paper but remain constrained by spending rules. The deficit is forecast at 2.6% of GDP in 2026 and 2.2% in 2027. Net expenditure would exceed the limits set in the fiscal plan agreed with Brussels.
Consumption and employment can carry the economy through 2026. Population growth adds support. Rising energy costs and persistent underlying inflation threaten household purchasing power, while the combination of faster growth and slower disinflation keeps Spain from a rapid return to price stability.
Public debt is projected to decline to 98.5% of GDP and then 96.2%.
