Spain's GDP accelerates to 0.7% in Q2, inflation reaches 3.5% in July

GDP growth picks up

Spain's economy expanded 0.7% in the second quarter of 2026 compared with the previous three months, accelerating from 0.6% in the first quarter, according to preliminary national accounts data released by the INE on Thursday. Year-on-year, GDP grew 2.7%, unchanged from the first quarter. The accumulated growth for the first half of the year reached 2.2%, putting the economy on track to meet the government's full-year forecast of 2.6%. Household consumption rose 0.7% quarter-on-quarter and 3.2% annually, while gross fixed capital formation increased 0.4% quarterly and 5.1% year-on-year. Within investment, spending on intellectual property products jumped 7.7% and construction advanced 5.2%.

Inflation driven by energy costs

Consumer prices climbed to 3.5% in July, three tenths above the 3.2% recorded in June, marking the highest rate since May 2024. The INE attributed the rise to higher prices for vehicle fuels and lubricants, as well as electricity, partly reflecting the end of a VAT reduction on fuels. Core inflation, which strips out energy and unprocessed food, edged up one tenth to 3%. On a monthly basis, the CPI rose 0.2%, down from a 0.6% increase in June, but still extending a six-month streak of monthly gains. The harmonised index of consumer prices also increased two tenths year-on-year.

Government measures cushion the blow

The government's response plan to the economic fallout from the war in Iran has helped absorb the external shock. The Ministry of Economy estimates that the measures have reduced inflation by an average of one percentage point in recent months, cushioning more than 60% of the price increase triggered by the conflict. Fuel discounts at petrol stations remain in place. The anti-crisis shield, first rolled out in March, was reformulated in July with a clause that allows aid to be withdrawn gradually over the summer provided there are no further inflation spikes.

We remain in a complex international context, marked by the war in Iran, whose pressure on fuels has pushed inflation up three tenths in July, to 3.5%. However, fuel discounts at petrol stations remain in force.

Labour market underpins consumption

Employment continued to support household spending. For the sixth consecutive quarter, annual job creation exceeded half a million positions. In seasonally adjusted terms, more than 22.6 million people were employed, and the unemployment rate fell below 10%, its lowest level since 2008. The Ministry of Economy noted that job quality is improving alongside the quantity of employment.

International headwinds and outlook

Spain's growth continues to outpace the main eurozone economies, according to international organisations, despite the external pressures. The war in Iran and disruptions to maritime traffic in the Strait of Hormuz, through which a third of global gas and oil trade passes, have kept energy markets volatile. A ceasefire agreed between Tehran and Washington in June collapsed after a few weeks, reigniting hostilities and maintaining upward pressure on prices. With the carry-over effect already at 2.2% for the year, Spain remains on course to achieve the government's 2.6% growth target, though the persistence of inflation above the European Central Bank's 2% target and the uncertain trajectory of the conflict pose risks.