Bank of Spain deputy governor sets out Spain outlook and warns tariff escalation could lower 2026 growth to 1.1%

In a speech on the Spanish economy’s situation and outlook, the Bank of Spain’s Deputy Governor Soledad Núñez reviewed Spain’s recent outperformance versus the euro area and the Bank’s June projections, which point to moderating GDP growth and inflation against a backdrop of heightened global uncertainty driven by geopolitical shocks and policy changes in the United States. Spain’s resilience was linked to domestic and structural factors, including a shift in spending towards leisure, stronger cross-border tradable services since the pandemic, lower energy prices partly supported by greater renewable generation capacity, and easing labour bottlenecks, with foreign-born workers filling 76% of jobs created since 2019. At the same time, growth has slowed from rates above 3% to just above 2.5% in 2025 H1, mainly due to a weaker external contribution, while Q2 growth was supported by domestic demand. Inflation rose to 2.7% in July, driven mainly by energy prices, with core inflation around 2.5%. The June baseline projections foresee GDP growth of 2.4% in 2025 and 1.8% in 2026, HICP inflation of 2.4% in 2025 and 1.7% in 2026, and core inflation of 2.6% in 2025 and 2.1% in 2026. The speech also stressed the use of alternative scenarios and high-frequency data in policymaking under uncertainty. In the June projections, a protracted tariff escalation scenario with amplified uncertainty and financial turmoil would reduce GDP growth to 2.0% in 2025 and 1.1% in 2026 and lower inflation to 2.1% in 2025 and 1.2% in 2026. As context, the presentation referenced recent trade agreements that raise effective US tariffs on trading partners, including a US-EU agreement featuring a minimum 15% US tariff with some exceptions.