The International Monetary Fund has completed its Article IV consultation for Spain, with the Executive Board concluding that the economy remains strong but that policy should now focus on rebuilding fiscal space and addressing medium-term constraints. Growth reached 2.8 percent in 2025 and is projected to remain solid at 2.1 percent in 2026 before easing as demographic headwinds intensify. Directors judged risks to the outlook to be tilted to the downside, particularly from a prolonged war in the Middle East, and called for faster, growth-friendly fiscal consolidation alongside reforms to raise employment and productivity. The Board noted that inflation has remained sticky and is projected at 3 percent at end-2026, while the general government deficit narrowed to 2.4 percent of GDP in 2025 and systemic financial risks remain low. It broadly supported phasing out recent energy support measures, considering further pension reform, harmonizing VAT rates while protecting vulnerable households, and putting in place a full medium-term fiscal strategy with a stronger role for the independent fiscal council and closer alignment of subnational rules with the European Union fiscal framework. On financial stability, Directors highlighted fast-rising house prices and early signs of easier bank lending standards, and saw merit in introducing mortgage-related borrower-based measures, potentially through supervisory guidance, while design and calibration work continues ahead of implementation. They also urged further progress on remaining Financial Sector Assessment Program recommendations, active labor market policies, innovation, and housing supply measures including faster urban development and simpler permitting.

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