The Banco de España issued a warning on Tuesday regarding the impact of United States-imposed tariffs, describing their effect on the Spanish economy as "limited".

However, the repercussions may escalate depending on the retaliatory actions from affected countries and the overall deterioration of financial conditions or heightened uncertainty, which could influence corporate investment and consumer spending decisions.

In its annual report for 2024, the bank identified the trade war as a primary "source of risk" for the Spanish economy, alongside other challenges including productivity gains, the financial burden of medical leave, and maintaining investment levels following the expiration of funds from the Recovery, Transformation, and Resilience Plan.

According to the bank’s estimates, the trade conflict could result in an impact of up to three-tenths on Spain's Gross Domestic Product (GDP) in the most adverse commercial scenario.

The report indicated, though, that it is premature to provide a comprehensive assessment, with updated forecasts expected by June, likely reflecting downward revisions.

The most considerable impact is anticipated to arise from the indirect effects of tariffs, fueled by Spain’s integration into global value chains.

Spain is significant in manufacturing components that are utilized in products destined for the American market.

Furthermore, exports of items such as wine and olive oil could face substitution from other more economical markets.

The potential consequences may extend beyond goods to include services, particularly tourism, a critical sector of the Spanish economy.

The bank noted that a decline in global economic activity could lead to a reduction in visitors, as the United States is the largest non-European source of tourists to Spain, contributing a high level of spending.

Additionally, the euro's appreciation may divert foreign tourists towards more affordable destinations.

Currently, the tariffs affecting Spanish exports to the United States average 12%, a significant increase from just 3% two years ago.

Should reciprocal tariffs, announced by the U.S. administration on April 2, be implemented, the effective average tariff rate on Spanish exports to the U.S. could escalate to 18%.

Sectors such as pharmaceuticals could see a production decline of 1.5%, while the chemical and basic metals sectors might experience a decrease of 0.5% in output.

The ultimate effect will depend on the U.S. demand response to rising prices and Spanish companies' ability to adjust profit margins and seek alternative export markets.

With respect to inflation, the United States is likely to encounter more severe inflationary pressures, while in the euro area and Spain, inflationary pressures could be "more limited," potentially offset by reduced activity levels and trade diversion effects, which could redirect exports from other countries to Spain and the European Union that would typically go to the U.S.

The Banco de España also highlighted issues in the housing market, noting that new construction is insufficient to meet surging demand.

The estimated deficit of properties is between 400,000 and 450,000 dwellings from 2022 to 2024, which poses a risk of creating a "bottleneck" for the Spanish economy if measures are not implemented.

Among its suggestions, the bank proposed the creation of new public insurance programs, a stable regulatory and contractual framework to ensure legal security, public-private collaborations to increase the supply of affordable rental housing, and measures to reduce administrative and regulatory friction in land production or construction.

The bank also emphasized the need to lower housing production costs by promoting industrialized construction.

The Ministry of Housing has indicated that the Banco de España’s annual report aligns with its own assessments and "supports" the government’s housing strategy, which focuses on three main pillars: the necessity for increased housing, improvements in regulations, and enhanced support for specific groups.

In the labor market, the Banco de España reported ongoing "robust growth" in employment in 2024 and early 2025, particularly among immigrants and individuals with higher educational levels, mainly within the services sector.

Almost 76% of all jobs created in Spain between late 2019 and late 2024 were filled by people born outside the country, many of whom are in sectors facing labor shortages.

Additionally, the cost associated with incapacity benefits has risen by 78.5% since 2019, totaling just over €15 billion, approximately 1% of GDP, for public administrations.

For private enterprises, this cost reached €4.613 billion last year, a 62% increase.

The increase in disability claims has been attributed to a decline in workers’ health post-pandemic and economic cycles that historically correlate with a higher incidence of temporary incapacity during periods of expansion.

Notably, the report, the first since the former minister Escrivá took office, has significantly reduced the number of economic policy recommendations typically included.

It has focused minimally on pension issues and omitted discussions on current topics such as reduced working hours, autonomous debt forgiveness, or rent price regulation.

In response to inquiries on this matter, sources from the supervisory body have stated that this report incorporates novel issues, with some mentioned topics having been addressed in prior reports.

The previous year, the Banco de España criticized plans to delay retirement age, arguing that this would not curb pension expenditure and would not be a sufficient measure to sustain the system.

Moreover, the bank expressed criticism towards the medium-term fiscal and structural plan for 2025-2028, stating it "misses the opportunity to make rigorous long-term planning of public accounts, which would benefit from the robust growth pattern presented by the current Spanish economy."