Spain 2026 growth forecast lifted to 2.5%
Spain’s economy is still expected to expand faster than most of the euro area next year, but Funcas now sees that growth arriving with stickier prices, higher borrowing costs and a smaller policy cushion.
The Spanish think tank lifted its 2026 gross domestic product forecast by two-tenths to 2.5%, citing a stronger-than-expected second quarter and a slightly firmer third quarter, while also raising its inflation outlook by the same margin to 3.4% for headline prices and 2.9% for core inflation. The revision matters because it points to an economy that remains resilient even as price pressures and financing costs stay elevated, complicating the case for faster rate relief from the European Central Bank and keeping pressure on households, public finances and rate-sensitive sectors.
Funcas left its 2025 growth forecast unchanged at 2%, implying the momentum is being pushed further into 2026 rather than fading this year. Domestic demand is expected to remain the main engine, contributing 2.9 percentage points to growth in 2026, while net external trade would subtract 0.4 points. That mix is supportive for employment, with the panel forecasting job growth of 2.2% in 2026 and 1.7% in 2027, and unemployment edging down to 9.6% next year from 9.9% this year.
For investors, the more important message is that Spain’s better growth profile is not coming with disinflation. Funcas also nudged up its 2027 inflation forecasts to 2.5% for headline and 2.6% for core, suggesting price pressures may stay above the ECB’s target for longer than hoped. That backdrop has already fed into market pricing: the panel sees one-year Euribor above 3.2% and only easing toward 2.7% by year-end, while Spain’s 10-year bond yield could approach 3.5% as investors continue to worry about deficit levels across advanced economies.
That combination is supportive for banks and other lenders that benefit from higher-for-longer rates, but it is less friendly to mortgage borrowers, highly leveraged companies and sectors dependent on cheap credit. Banco Bilbao Vizcaya Argentaria, which recently tapped debt markets with a $1 billion senior non-preferred note issue, is among the issuers that can still fund at scale, but wider funding costs across the economy remain a headwind.
The fiscal picture also looks less comfortable. Funcas expects Spain’s public deficit to hold at 2.5% of GDP this year and improve only modestly to 2.3% in 2027, leaving the government with little room to offset weaker external demand or a renewed inflation shock. With external trade expected to detract from growth in both 2026 and 2027, the story now is less about a broad-based acceleration than a domestic-demand-led expansion that is proving more expensive to finance.
For markets, the key catalyst is whether incoming data confirm Funcas’s view that Spain can keep growing near 2.5% without a meaningful easing in inflation. If that proves right, Spanish assets may continue to trade on relative growth strength, but bond yields and refinancing costs are likely to stay under pressure.
| Entity | Gains | Losses |
|---|---|---|
| Spanish economy | ▲Faster growth outlook | ▼Higher inflation and rates |
| Banks and lenders | ▲Wider rate margins | ▼Credit-demand sensitivity |
| Mortgage borrowers | ▲— | ▼Higher Euribor and borrowing costs |
| Spanish government | ▲Solid labor market | ▼Higher deficit financing burden |