BDE revises Spanish economic outlook amid geopolitical uncertainty
The Banco de España's latest quarterly report revises Spain's macroeconomic projections, lowering GDP growth for 2026 while raising inflation forecasts. This adjustment reflects the significant uncertainty and energy price increases stemming from the Middle East conflict.
Global shocks reshape euro area outlook
The Middle East conflict, erupting in late February 2026, significantly heightened global economic uncertainty.
It triggered instability in financial markets, with major stock indices experiencing corrections and long-term sovereign bond yields rising in the euro area.
Crude oil and natural gas prices surged by approximately 30% and 60% respectively, due to disruptions in production and transport, including the de facto closure of the Strait of Hormuz.
This geopolitical backdrop led the European Central Bank (ECB) to revise its euro area economic outlook downwards for 2026 and 2027, with GDP growth now projected at 0.9% and 1.3% respectively.
Euro area inflation forecasts were simultaneously revised upwards to 2.6% for 2026 and 2.0% for 2027, primarily due to the pick-up in energy prices.
The ECB also developed alternative scenarios, with a more prolonged conflict potentially pushing 2026 euro area GDP growth to 0.4% and inflation to 4.4%.
Policy interest rates in major advanced economies, including the ECB's 2.0% rate, remained unchanged in early 2026, though expectations for future rate paths have shifted upwards.
Spanish resilience meets revised forecasts
Spain's economy showed robust growth, with GDP rising 0.8% in Q4 2025, surpassing expectations and driven by strong domestic demand, particularly private consumption and investment.
While a slight moderation to 0.5-0.6% GDP growth is anticipated for Q1 2026, employment has seen a slowdown since November.
Headline inflation eased until February, primarily due to energy price dynamics, but core inflation remained stable at approximately 3% between November and February.
Wage settlements for 2026 are set at 2.9%, a reduction from the 3.5% negotiated in 2025.
Incorporating the geopolitical impact, the Banco de España has revised Spain's 2026 GDP growth forecast downwards by 0.1 percentage point to 2.3%.
Geopolitical shocks test Spanish resilience
The Banco de España's report underscores Spain's initial economic resilience, yet the revised forecasts highlight the profound vulnerability to external geopolitical shocks.
While the institution provides detailed alternative scenarios, the inherent unpredictability of the Middle East conflict renders any long-term projections highly conditional.
This situation presents a significant challenge for policymakers, who must navigate persistent inflationary pressures and potential growth deceleration amidst an increasingly volatile global landscape.