BBVA Research has raised Spain's 2026 economic growth forecast to 2.6% but predicts a slowdown to 2.1% in 2027 as inflation remains above target.
The bank's latest report cites rising energy costs, higher interest rates, weak productivity growth, an aging workforce, and strict fiscal constraints as the primary factors hampering economic expansion over the coming years.
Jorge Sicilia, director of BBVA Research and chief economist of Grupo BBVA, presented the latest Situación España report alongside Rafael Doménech, head of economic analysis at BBVA Research, and Miguel Cardoso, chief economist for Spain and Portugal.
Cardoso said the economy is converging toward growth rates seen over the last 30 years, describing the deceleration as moderate. He explained that the slower gross domestic product growth in 2027 stems from price increases weighing on household consumption and business investment.
BBVA Research estimates that rising oil and gas costs could reduce Spanish gross domestic product growth by 0.4 to 0.5 percentage points. Higher energy prices could also add between 0.8 and 0.9 percentage points to inflation through the end of 2027.
The report puts Spanish inflation at 3.6% in 2026 and 3.2% in 2027. Both figures remain substantially above the 2% target set by the European Central Bank, the central monetary authority for the eurozone.
Tighter monetary conditions could shave an additional 0.3 percentage points off average economic growth in 2026 and 2027. Economists at the bank warned that prolonged high energy costs will deepen the negative impact on overall business activity.
Households can initially offset lost purchasing power by drawing down savings or taking on consumer debt, while government fiscal policy can temporarily cushion incomes. However, bank analysts noted that if energy shocks persist, those protective buffers will weaken, forcing adjustments onto private spending and corporate investment.
Productivity and labor market trends
Beyond short-term trends, BBVA highlighted a persistent structural challenge in the Spanish economy: the failure to convert strong employment growth into matching productivity gains.
Spain has added roughly 2.5 million jobs since 2019, representing a 12.3% surge in employment. Yet over the same period, gross domestic product per employed person fell by 0.3%, while productivity per hour worked grew by just 1.7%.
Bank analysts stated that this contrast raises doubts about whether the economy can sustain long-term growth primarily by adding workers without increasing output per worker and hour worked.
Despite low productivity gains, the labor market will remain a primary support for economic activity. Measured by the Active Population Survey, known as the EPA, employment is projected to grow by 2.4% in 2026 and 2.0% in 2027, driven by active population growth and higher participation rates.
Foreign workers play a central role in sustaining employment. BBVA noted that foreign labor availability expands market capacity and supports fast-growing areas, including non-resident consumption and exports of non-tourist services.
Regarding Social Security registrations, BBVA estimated that without the government regularization process, foreign worker affiliations would have increased by about 210,000 since April, which is 275,000 fewer than the observed figure. Analysts cautioned that not all new registrations represent net job creation, as some reflect workers shifting from informal to formal employment.
Domestic consumption and housing deceleration
Domestic demand remains another core pillar supporting the economy. Private consumption is expected to expand by 3.1% in 2026 and 2.2% in 2027, backed by job creation, lower household savings, and rising household wealth driven by real estate gains.
Public consumption is forecast to grow by 2.5% in 2026 and 2.4% in 2027. BBVA noted that fiscal policy remains moderately expansionary despite overall economic growth, complicating efforts to reduce the public deficit quickly.
The bank projects the Spanish public deficit at 2.7% of gross domestic product this year and 2.4% in 2027.
Housing prices are expected to moderate significantly in 2027, dropping from 11.6% growth in 2026 to 5.5% in 2027. Investment in residential property is also softening.
Cardoso noted that housing completions are expected to reach between 130,000 and 140,000 units, down from a previous projection of 160,000 completed homes in 2027. He explained that substantial real price gains alongside higher interest rates are dampening sales and will moderate housing price growth.
Budget consolidation and trade imbalances
Public finances present another major point of uncertainty. Spain faces fiscal consolidation mandated by European Union rules, but doubts remain over how the government will execute the required spending cuts.
Meeting European fiscal targets will demand additional expenditure discipline. Meanwhile, Spain has operated for three consecutive years with the 2023 General State Budgets rolled over due to a lack of political consensus to approve a new budget.
BBVA warned that combining an expansionary fiscal stance with new European Union mandates leaves little fiscal flexibility if economic conditions deteriorate further.
The export sector presents a divided picture. Goods exports are forecast to shrink by 0.6% in 2026 due to higher costs and sluggish European growth, before rebounding by 2.1% in 2027.
By contrast, service exports continue to thrive, with projected growth of 6.7% in 2026 and 4.2% in 2027. Service exports have surged nearly 54% since late 2019, turning into a core driver of national expansion.
Capital investment is also splitting across sectors. Purchases of machinery and equipment are expected to increase by 3.8% in 2026 and 3.0% in 2027, while construction activity is set to grow by 2.8% this year and 3.7% next year.
Infrastructure bottlenecks and demographic challenges
Beyond financial constraints, BBVA pointed to severe infrastructure challenges, naming electricity grid congestion as a critical bottleneck for future growth.
National electricity demand is expected to surge by 45% by 2030. Expanding grid capacity is vital for accommodating new industrial investments, supporting economy-wide electrification, and powering energy-intensive industries.
The labor market also faces a major long-term demographic hurdle. By 2040, between 20% and 25% of the current workforce in major European countries will reach retirement age.
In Spain, this demographic shift affects approximately 4.7 million workers. Analysts warned that generational replacement could be compromised unless employment rates among older age groups increase, highlighting the importance of retaining workers aged 55 to 69.
While immigration will cushion part of the decline, BBVA stressed that foreign population growth will not fully offset the contraction of the native working-age population.
Artificial intelligence and global energy pressures
BBVA identifies artificial intelligence as a key opportunity to resolve Spain's underlying productivity problem. The adoption of artificial intelligence will automate specific tasks, complement workers, and generate new jobs, freeing up time for high-value activities.
Data collected since 2022 shows that employment in occupations with high exposure to artificial intelligence grew faster than in other sectors, while exhibiting lower rates of temporary employment and underemployment.
However, bank analysts noted that productivity gains will not occur automatically, depending instead on adoption speed, regulatory frameworks, corporate restructuring, and worker skill levels.
Much of the economic worsening stems from abroad. BBVA Research expects ongoing transit disruptions in the Strait of Hormuz, a crucial sea route for global energy transport, to keep raw material prices elevated, forecasting crude oil to average around $90 per barrel through late 2026 and early 2027 before easing to an average of $76 per barrel in 2027.
Across the wider Eurozone, BBVA raised its 2026 economic growth forecast from 0.7% to 0.9% while keeping its 2027 forecast at 1.2%. Eurozone inflation is projected to reach 3% this year and 2.4% next year.
Persistent inflationary pressures could compel monetary authorities to maintain tight policies. BBVA Research anticipates a 25-basis-point interest rate increase by the European Central Bank in December, raising the benchmark rate to 2.75%, with subsequent decisions dictated by economic data.
Spain enters 2027 outperforming many European peers in growth, but with diminishing buffers against external shocks. BBVA concluded that while immigration and labor participation will expand total employment, adopting artificial intelligence and driving efficiency gains will be essential to lower prices and secure sustainable productivity growth.
