Spain closes 2025 with 2.9% growth, eyes 2026 slowdown
As 2025 draws to a close, Spain finds itself in an uncommon position within the European economic landscape: growing faster than most of its peers, revising expectations upward, and entering 2026 with a blend of momentum and structural uncertainty. The latest macroeconomic projections from the Bank of Spain, combined with a record year for financial markets, point to an economy that has exceeded expectations—yet now faces a phase of normalization rather than acceleration.
The year-end picture is not one of triumphalism but of adjustment. Growth remains strong, inflation is easing unevenly, and fiscal consolidation is progressing with caveats. Spain’s outlook for 2026 will depend less on rebounds and more on balance.
Growth revised upward as data reshapes expectations
Spain will close 2025 with GDP growth of 2.9%, according to the Bank of Spain’s final macroeconomic projections of the year, figures that were reported and detailed by Bolsamanía. This represents a notable upward revision compared with estimates published just three months earlier and confirms Spain’s position as one of the fastest-growing large economies in the eurozone.
The central bank now expects growth to moderate to 2.2% in 2026 and 1.9% in 2027, still above the bloc’s average but clearly pointing to a gradual deceleration. Rather than signalling weakness, the adjustment reflects an economy converging toward its estimated potential growth rate, around 2%.
According to the Bank of Spain, the revision stems partly from updated national accounts that showed stronger activity in recent quarters, and partly from a reassessment of consumption, external demand and sectoral performance. Spain is slowing down, but from a higher cruising altitude than previously assumed.
Consumption and services exports sustain momentum
Private consumption has again exceeded expectations. Despite higher interest rates for much of the year and persistent cost-of-living pressures, households continued to spend, supported by job creation and improving real wages.
Investment growth has been more restrained but remained positive, particularly in services, infrastructure and digital-related activities. The Bank of Spain highlights non-tourism services exports as a structural support, with sectors such as professional services, technology and business consulting gaining weight in the growth mix.
This rebalancing matters. It suggests that Spain’s expansion in 2025 was not driven solely by cyclical tailwinds or tourism recovery, but increasingly by higher value-added services, which tend to be more resilient across cycles.
Inflation outlook: higher revisions, softer trajectory
Inflation remains central to the outlook for 2026. The Bank of Spain now expects headline inflation to average 2.7% in 2025, before easing to 2.1% in 2026 and 1.9% in 2027, figures also reported by Bolsamanía.
The upward revision for 2025 and 2026 reflects recent price dynamics that came in above earlier expectations. Part of the adjustment is mechanical: higher-than-expected inflation at the end of 2025 lifts average rates for the following year. Other factors include revised assumptions on interest rates and the strength of domestic demand.
Core inflation, which strips out energy and food, is projected to decline more slowly, from 2.6% in 2025 to 2.1% by 2027. The Bank of Spain attributes this persistence to wage growth and consumption resilience rather than energy shocks.
Looking further ahead, inflation forecasts for 2027 have been revised downward, largely due to the one-year delay in the EU’s new emissions trading system (ETS2), which reduces projected energy-related price pressures.
Labour market: still strong, gradually cooling
Employment has remained a key pillar of Spain’s performance. According to the Bank of Spain, job creation is expected to grow by 2.7% in 2025, slowing to 2% in 2026 and 1.4% in 2027.
Unemployment continues to fall, albeit at a slower pace. The jobless rate is projected to reach 9.6% by 2027, reflecting both a moderation in hiring and an expanding labour force.
These figures suggest a labour market that is normalizing rather than deteriorating. Spain is approaching unemployment levels not seen in decades, though structural challenges—such as temporary employment and regional disparities—remain unresolved.
Wages, productivity and corporate margins
One of the more nuanced elements of the outlook concerns wages. As reported by ABC, the Bank of Spain’s new chief economist has incorporated more qualitative judgment into the projections, particularly regarding salary dynamics and productivity.
Wages are expected to grow above inflation over the coming years, supported by collective bargaining and public sector pay agreements. The central bank assumes that productivity gains—driven by services exports and intangible investment—will absorb part of the cost increase.
Under this framework, higher wages do not automatically translate into higher inflation. Instead, corporate margins are expected to narrow, especially in competitive sectors, as firms absorb some of the cost pressure.
This assumption is critical. If productivity underperforms or companies pass costs on to prices, inflation dynamics could shift. For now, the Bank of Spain’s baseline scenario leans toward adjustment through margins rather than prices.
Public finances: consolidation with a turning point
Fiscal consolidation remains broadly on track. Spain’s public deficit is projected at 2.5% of GDP in 2025 and 2.1% in 2026, in line with commitments to the European Commission, figures outlined by the Bank of Spain and covered by Bolsamanía.
However, 2027 marks a turning point. Recently agreed public sector wage increases significantly raise expenditure, pushing the deficit back up to 2.5% of GDP. This revision is substantial compared with previous forecasts and introduces a note of caution into the medium-term outlook.
Public debt, by contrast, continues to decline. Thanks to strong nominal GDP growth, the debt-to-GDP ratio is expected to fall from 100.6% in 2025 to around 98.3% by 2027.
Growth, rather than spending cuts, is driving fiscal improvement, a strategy that remains effective as long as economic momentum holds.
Markets close 2025 at record highs
While macroeconomic forecasts shape expectations, financial markets tell their own story. As reported by eldiario.es, Spain’s stock market closed 2025 with a revaluation of around 46%, placing it among the top-performing markets globally for the third consecutive year.
The IBEX 35 surpassed previous historical highs, and total market capitalization exceeded one trillion euros for the first time. Dividend payouts reached nearly €39 billion, the second-highest figure on record.
Trading volumes, capital increases and corporate bond issuance all surged, reflecting renewed investor interest. Market operators highlighted strong corporate earnings, sectoral diversification and Spain’s relative economic stability amid global uncertainty.
2026: from rebound to balance
Spain enters 2026 with solid fundamentals and fewer imbalances than in past cycles. Growth is set to moderate, inflation to ease gradually, and job creation to slow without reversing.
The challenge ahead is sustainability. Can productivity gains keep pace with wage growth? Will fiscal discipline hold once exceptional growth fades? Can investment remain resilient in a more volatile global environment?
For now, the data suggest an economy transitioning from post-crisis rebound to steady expansion. Spain closes 2025 not as Europe’s outlier, but as one of its reference points, navigating a more mature phase of growth.
Frequently Asked Questions
How fast did Spain’s economy grow in 2025?
Spain’s GDP is estimated to have grown by 2.9% in 2025, significantly above the euro area average and higher than previously forecast.
What is Spain’s economic outlook for 2026?
The Bank of Spain expects growth to moderate to 2.2% in 2026, with inflation easing to around 2.1% and continued job creation, albeit at a slower pace.
Is inflation still a concern in Spain?
Inflation remains above target in 2025 but is expected to gradually decline through 2026 and 2027, helped by lower energy prices and regulatory factors.
How is Spain’s labour market performing?
Employment growth remains strong, and unemployment is projected to fall further, reaching around 9.6% by 2027.
Why did Spanish stock markets perform so well in 2025?
Strong economic growth, rising corporate earnings, high dividend payouts and renewed investor confidence helped drive record gains in Spanish equities.
