Madrid, March 27 - Spain's economy likely posted growth of between 0.5% and 0.6% in the first quarter, the Bank of Spain reported on Friday, a pace that outstrips many of the larger economies in the euro area but marks a slowdown from the 0.8% expansion recorded in the fourth quarter.
In its latest outlook the central bank nudged up its baseline projection for full-year 2026 growth to 2.3% from a prior estimate of 2.2%, explicitly incorporating the economic impact of the war in Iran into its calculations. The bank noted that Spain's economy expanded by 2.8% in 2025.
Officials said the forecast was prepared under more unfavourable technical assumptions relating to energy prices and developments in external markets. Those negative technical effects are expected to be partly offset by fiscal support measures enacted to mitigate the fallout from the Middle East crisis.
The Bank of Spain added that in the absence of the Iran conflict its GDP projection for 2026 would have been raised to 2.4% rather than the reported 2.3%.
Under its baseline scenario the bank now expects GDP to grow 1.7% for the relevant near-term horizon, compared with a 2.0% outcome in a scenario without the impact from the war in the Middle East. This baseline estimate is lower than the December forecast, which stood at 1.9%.
Inflation expectations were revised higher as well: the bank projects inflation will accelerate to 3.0% in 2026 under its baseline, up from an earlier forecast of 2.1%, and to 2.5% in 2027 compared with a prior 1.9% estimate.
On public finances, the central bank forecast a budget deficit of 2.3% of GDP for both 2026 and 2027, an improvement from the 2.5% deficit recorded in 2025. The debt-to-GDP ratio is projected to finish the current year at 99.2% and to fall to 98.1% by the end of 2027.
What this means - The Bank of Spain's revisions reflect a balancing act between negative external and energy-related pressures and domestic fiscal measures aimed at cushioning the economy from geopolitical shocks.