Economic Outline

Economic Indicators

Spain has been in the midst of a balanced economic recovery in recent years and is currently one of the fastest-growing economies in Europe. After growing by 2.7% in 2023, real GDP expanded by 3.2% in 2024, buoyed by carry-over effects from the previous year. Consumer spending continued to increase, supported by job creation and real income gains. On the external front, strong tourism and non-tourism service exports help net exports (data INE). As per the EU Commission, economic activity is projected to slow to 2.3% in 2025 and 2.1% in 2026, with domestic demand remaining the primary driver, fueled by consumption and increased investment. This is linked to the Recovery and Resilience Plan (RRP), solid corporate finances, and easing financing conditions. Furthermore, a rebound in imports should reduce the external demand contribution to GDP in 2025 and 2026.

After reaching 3.5% of GDP in 2023, the general government deficit decreased to an estimated 3% in 2024, as most measures to mitigate the economic and social impact of high energy prices were phased out (data EU Commission). The revenue-to-GDP ratio increased, partly due to the removal of VAT reductions, the special tax on electricity, and the exemption from the tax on the value of electricity. The phase-out of the fuel rebate also contributed to savings on the expenditure side. Risks to the projections stem from the costs associated with addressing the impact of recent floods in the Valencian Community. With unchanged policies, the government deficit is expected to further decline in 2025 to 2.6% of GDP, despite slightly higher interest expenditure. This decline is driven by slower growth in nationally-financed primary expenditure and positive tax revenue trends. Supported by strong nominal GDP growth, which outpaced the cost of debt servicing, the debt-to-GDP ratio decreased to 102.3% in 2024 (from 105.1% one year earlier). The ratio is expected to decrease more gradually in 2025-2026, reaching around 101.1%, due to a less favourable interest-growth rate differential (EU Commission). Annual HICP inflation declined to 2.8% in 2024, driven by the ongoing slowdown in energy and food price inflation. Underlying price pressures eased more gradually, particularly in services related to hospitality and transport. Headline inflation is expected to continue slowing in 2025, reaching 2.2%, with the downward trend in underlying components projected to persist in the coming quarters, before easing further to 2.0% in 2026.

The strong performance of the labour market continued into 2024, with job creation accelerating sharply in the first half of the year and maintaining momentum into the third quarter. Employment growth expanded by 2.3% in 2024, mainly driven by strong immigration flows. The unemployment rate is expected to decline steadily, reaching 10.7% by 2026, down from around 11.5% in 2024. Nominal wage growth outpaced inflation in 2024, with real income gains expected to moderate in 2025 and 2026. Spain remains a country with strong inequalities: according to the latest data by Eurostat, 27% of the population is at risk of poverty or social exclusion (the third-highest level in the EU), despite a relatively high GDP per capita (USD 35,789  in 2024 – IMF).

Any Comment About This Content? Report It to Us.