Spain's economic projections updated, factoring in energy supply shock
The Banco de España has presented its updated macroeconomic projections for Spain for 2026-2028. The outlook incorporates a significant energy supply shock and the government's RDL 7/2026 measures.
Inflationary pressures and robust Q1 growth
Spain's economy showed resilience in late 2025, with GDP growing 0.8 percent in Q4, outperforming the Euro area's 0.2 percent.
High-frequency indicators, such as affiliation data and card spending, suggest continued strength into Q1 2026, with estimated growth between 0.5 and 0.6 percent.
However, this positive momentum is overshadowed by a significant surge in energy prices.
Spanish inflation (HICP) rose to 3.3 percent in March from 2.5 percent in February, driven by energy.
Services inflation remained persistent at 3.9 percent.
The Banco de España's projections highlight that the recent increase in natural gas and oil prices, following the 'Iran War (2026)' event, is historically very elevated, with natural gas prices up 56 percent and oil prices up 42 percent in a short period.
This energy shock is identified as a global supply disruption affecting energy, fertilizers, and semiconductors, with about 20 percent of global production impacted.
Markets react, government intervenes
The 'Iran War (2026)' event triggered notable market reactions, with the S&P 500 falling 4.7 percent and the Euro Stoxx 50 down 9.1 percent.
Volatility, measured by the VIX, increased by 7.1 percentage points, and the dollar appreciated by 1.9 percent.
Yield curves and risk premiums also rose.
In response to the crisis, the Spanish government approved Royal Decree-Law (RDL) 7/2026, a package of measures totaling €5.0 billion (0.29 percent of GDP).
This includes reductions in energy taxes, such as lowering VAT on fuels, electricity, and gas to 10 percent, and subsidies for transport, agriculture, and industry.
These measures are set to mitigate the immediate impact of the energy shock, particularly on inflation, by reducing the direct pass-through of higher energy costs to consumers.
A fragile recovery under a new shadow
The Banco de España's updated projections reveal a Spanish economy grappling with a significant external shock, challenging its underlying resilience.
While government measures offer temporary relief, the persistent energy price volatility and broader supply chain disruptions suggest a fragile path to stable growth and inflation.
This situation underscores the urgent need for structural reforms to enhance energy independence and bolster economic resilience against future global shocks.