Bank of Spain Adjusts Economic Growth Forecast Amid Global Uncertainty
The Bank of Spain has revised its growth forecasts for the Spanish Gross Domestic Product (GDP) for 2025, now estimating a slowdown to 2.4%, a reduction of three tenths compared to previous projections. Additionally, the growth forecast for 2026 has been adjusted downwards by one tenth to 1.8%. This news was disclosed by José Luis Escrivá, the governor of the Bank of Spain, during a speech at the Congress of Deputies.
Escrivá's announcement comes ahead of the full macroeconomic report expected to be published on June 10. He highlighted the current economic landscape, characterized by heightened uncertainty and complex conditions globally, which have led to these cautious adjustments in forecasts.
Notably, Spain's direct trade exposure to the United States is relatively minor compared to other major European Union economies; however, certain sectors like chemicals display greater indirect exposure due to their integration into global value chains. The Bank of Spain warns that should a scenario of prolonged tariff escalations materialize, it could further dampen growth rates by 0.4 percentage points in 2025 and 0.7 percentage points in 2026. This scenario could also lead to a decrease in inflation by approximately 0.3 to 0.5 percentage points during those years.
The institution noted that Spain's economy is already experiencing a growth slowdown, dropping from rates exceeding 3% to an estimated near 2.5% for the first half of 2025. This gradual decline has been primarily attributed to a reduced contribution from the external sector. Furthermore, a survey conducted by the Bank of Spain indicates that uncertainty is weighing heavily on businesses, with 30% of firms reporting impacts from tariffs and 80% of these affected companies citing uncertainty as a significant concern.
Looking ahead to inflation rates, the Bank of Spain's revised forecast anticipates an average general inflation rate of 2.4% for 2025, which is one tenth lower than earlier estimates made in March. The disinflation trend is expected to continue, bringing the average inflation down to 1.7% in 2026.
As for the labor market, the unemployment rate forecast remains unchanged at 10.5% for 2025, but there has been a slight upward adjustment to 10.2% for 2026. On the fiscal front, projections for the public deficit stay at 2.8% for 2025 and 2.6% for 2026. Additionally, estimates for public debt have risen slightly, with the Bank of Spain raising its forecast for 2025 to 101.4% of GDP, a figure expected to remain steady into 2026.
In summary, the Bank of Spain's latest projections reflect a cautious outlook amid a backdrop of global trade uncertainties and potential tariff escalations. The anticipated slowdown in growth, along with the revisions to inflation, unemployment, and public debt, paints a complex economic picture for the coming years.
Related Sources: