Bank of Spain raises 2026 growth forecast to 2.6% and warns inflation will hit 3.9%

Growth forecast raised

The Banco de España raised its 2026 GDP growth forecast by three tenths to 2.6% and its 2027 forecast by five tenths to 2.2%, in a macroeconomic projections report presented on Friday, 9 October. The institution, led by governor José Luis Escrivá, pointed to household consumption, job creation, population growth and rising disposable income as the main drivers. Household consumption is expected to grow 3% in 2026, against 3.1% the year before, before slowing to 1.9% in 2027. GDP grew 0.7% quarter on quarter between April and June, against 0.6% in the first quarter, and available indicators point to 0.6% growth in the third quarter. The household savings rate stands at 11%, well above its historical average.

The Spanish economy maintains a remarkable resilience.

Inflation outlook

The bank now expects average inflation of 3.9% in 2026, three tenths above its June forecast, and 3.7% in 2027, which is 1.1 percentage points higher than in June. Core inflation, which excludes energy and fresh food, is projected at 3.4% in 2026 and 3.5% in 2027. Energy prices are the main cause, with energy inflation reaching 22% year on year in September, 15 points more than in April. The harmonised index rose from 3.5% in April to 5% in September according to the advance indicator, and the gap with the euro area widened from 0.5 points in April to 1.2 points in September. Rising gas prices, higher oil costs and wider refining margins weigh especially on diesel, while tourism and hospitality prices have also risen faster in Spain. If geopolitical tensions intensify, inflation could reach 4.1% this year, according to the report.

Cost of government measures

The fiscal measures approved through the end of September cost 0.52% of GDP, about a fifth of the 2.6% deficit forecast for 2026. Cuts to electricity, gas and fuel taxes account for almost 65% of that cost, or 0.34% of GDP, while sector aid represents about 0.18%. According to the bank's calculations, the tax cuts save households a direct 3,675 million euros, roughly 0.21% of GDP. Without these measures, average energy inflation between April and August would have exceeded the observed rate by almost 10 percentage points. The first package, running from March to June, accounts for more than half of the total cost.

Escalation risk

The bank warns that a worsening of the war in Iran would have an impact of 0.6 points on GDP in 2027 and close to one additional point on inflation. In the most adverse scenario described in the report, inflation could exceed 4% both this year and next. The report also notes that energy inflation rose sharply because higher international gas prices pushed up wholesale electricity prices, an effect especially intense in summer when renewable output falls and demand rises with high temperatures. According to El Mundo, the bank also warned of persistent restrictions in housing construction despite the country's housing shortfall.