OECD Reports Slight Downgrade in Spanish Economic Growth Amid Trade War Effects
The Organisation for Economic Cooperation and Development (OECD) has noted early signs that the Spanish economy is beginning to feel the impact of the trade war initiated by U.S. President Donald Trump. Despite this, Spain's economy is still expected to outperform those of its major neighbors. The OECD has slightly lowered its growth forecasts for Spain, predicting an increase of 2.4% in 2024 and 1.9% in 2025. This is a reduction from previous forecasts of 2.3% and 2% made in December, with the new projections showing a downward shift from estimates of 2.6% for 2025 and 2.1% for 2026 published in a March report.
These revised figures are not only less buoyant than those projected by the Spanish government in April (2.6% for 2025 and 2.2% for 2026) but also fall short of the European Commission’s estimates released in May.
One of the primary concerns is the decline in activity indicators, which are based on purchasing managers’ surveys within Spanish companies, reflecting a broader trend also seen in Canada, Mexico, and the U.S. A significant factor contributing to this downturn is the anticipated impact on Spanish exports, which are expected to suffer due to reduced demand from key trading partners, a consequence of increased tariffs imposed by the United States. Notably, sales to the U.S. accounted for approximately 1% of Spain's GDP in 2024, a relatively modest figure.
As such, export growth is projected to decelerate from 3.1% in 2024 to 2.2% in both 2025 and 2026. Meanwhile, imports are forecasted to rise more rapidly, jumping from 2.4% in 2024 to 3.3% in 2025. This imbalance is expected to result in foreign trade subtracting three tenths from GDP in the current year.
Despite these challenges, Spain is still poised to experience greater economic growth than both the Eurozone, which is projected to grow at 1% in 2025 and 1.2% in 2026, and the United States (1.6% in 2025 and 1.5% in 2026), which will be significantly hampered by the impacts of Trump’s trade policy. The anticipated expansion of Spain's economy is largely attributed to strong domestic demand, propelled by consumer activity, with growth for this segment expected to slow but remain robust.
The unemployment rate is projected to continue its decline from 11.3% in 2024 to 10.7% in 2025 and down to 10.1% in 2026. This improvement in job creation is expected to boost purchasing power substantially, aided by a drop in inflation from 2.9% in 2024 to 2.4% in 2025 and 1.9% in 2026.
Furthermore, the OECD underscores the importance of fiscal adjustments to ensure Spain's economy aligns with European regulations and to address the escalating pressures from demographic changes and the ecological transition. The organization acknowledges that despite the challenges, the public deficit is on track to improve, decreasing from 3.2% of GDP in 2024 to 2.8% in 2025 and further down to 2.3% in 2026. This positive trend is expected to be supported by higher revenues from job creation and strategic fiscal measures, which will also accommodate increased defense spending and a €14 billion aid package for sectors impacted by the trade war.
If these forecasts hold, Spain may see its public debt drop below the significant milestone of 100% of GDP by 2026, a level not seen since before the COVID-19 pandemic in 2019.
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