Banco de España Lowers GDP Growth Forecast Amid Trade Tensions
The Spanish central bank adjusts its projections due to worsening external economic conditions stemming from international tariff disputes.
The Banco de España has revised its GDP growth forecast for 2025, reducing it by three-tenths to 2.4%, and lowering the projection for 2026 to 1.8% by one-tenth.
This adjustment is attributed to diminished external activity as a consequence of tariff conflicts initiated by the U.S. administration under President Donald Trump, which have impacted Spain’s economy and those of its European counterparts.
José Luis Escrivá, the governor of the Banco de España, addressed the issue during a presentation to the Economic Committee of the Congress of Deputies.
This information is disclosed in the bank's upcoming quarterly economic report set for release.
The average inflation rate is now projected to be 2.4% for 2025, a slight decrease from previous estimates, while inflation for 2026 is expected to decelerate to 1.7%.
Escrivá expressed uncertainty regarding future inflation trends, highlighting concerns that supply disruptions, akin to those seen during the pandemic, could drive prices higher, despite potential downward pressure from decreasing demand.
Regarding the labor market, the central bank has maintained its unemployment forecast at 10.5% for 2025 but has raised its projection for 2026 by two-tenths to 10.2%.
On the fiscal front, estimates for the public deficit have remained at 2.8% for 2025 and 2.6% for 2026. In terms of public debt, the Banco de España has increased its forecast for 2025 to 101.4% of GDP, a level projected to remain constant into 2026.
Spain’s direct commercial exposure to the United States is relatively limited compared to other major economies in the European Union; however, certain sectors, such as chemicals, face indirect exposure due to the integrated nature of global value chains.
The Banco de España warns that under a more adverse scenario involving a prolonged escalation of tariffs, GDP could decline by 0.4 percentage points in 2025 and 0.7 percentage points in 2026 relative to the baseline scenario, with inflation potentially decreasing by 3 to 5 tenths in those years.
Escrivá noted that the Spanish economy is currently experiencing a deceleration of growth, moving from rates above 3% to around 2.5% in the first half of 2025. The primary factor behind this slowdown is the reduced contribution from the external sector.
This adjustment is attributed to diminished external activity as a consequence of tariff conflicts initiated by the U.S. administration under President Donald Trump, which have impacted Spain’s economy and those of its European counterparts.
José Luis Escrivá, the governor of the Banco de España, addressed the issue during a presentation to the Economic Committee of the Congress of Deputies.
This information is disclosed in the bank's upcoming quarterly economic report set for release.
The average inflation rate is now projected to be 2.4% for 2025, a slight decrease from previous estimates, while inflation for 2026 is expected to decelerate to 1.7%.
Escrivá expressed uncertainty regarding future inflation trends, highlighting concerns that supply disruptions, akin to those seen during the pandemic, could drive prices higher, despite potential downward pressure from decreasing demand.
Regarding the labor market, the central bank has maintained its unemployment forecast at 10.5% for 2025 but has raised its projection for 2026 by two-tenths to 10.2%.
On the fiscal front, estimates for the public deficit have remained at 2.8% for 2025 and 2.6% for 2026. In terms of public debt, the Banco de España has increased its forecast for 2025 to 101.4% of GDP, a level projected to remain constant into 2026.
Spain’s direct commercial exposure to the United States is relatively limited compared to other major economies in the European Union; however, certain sectors, such as chemicals, face indirect exposure due to the integrated nature of global value chains.
The Banco de España warns that under a more adverse scenario involving a prolonged escalation of tariffs, GDP could decline by 0.4 percentage points in 2025 and 0.7 percentage points in 2026 relative to the baseline scenario, with inflation potentially decreasing by 3 to 5 tenths in those years.
Escrivá noted that the Spanish economy is currently experiencing a deceleration of growth, moving from rates above 3% to around 2.5% in the first half of 2025. The primary factor behind this slowdown is the reduced contribution from the external sector.
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