Bank of Spain sees GDP growing 0.6-0.7% in Q4 Q/Q

Bank of Spain sees GDP growing 0.6-0.7% in Q4 Q/Q, FY25 GDP growth at 2.9% (prev. 2.6%), FY26 GDP growth 2.2% (prev. 1.8%), FY27 GDP growth 1.9% (prev. 1.7%)

• The Bank of Spain forecasts a gradual decline in GDP growth from 2.9% in 2025 to 1.9% in 2027.
• Inflation is expected to moderate to 2.1% in 2026 and further to 1.9% in 2027.
• The debt-to-GDP ratio is projected to decrease steadily, reaching 98.3% by the end of 2027.

The Bank of Spain has released its economic forecasts, projecting a gradual slowdown in GDP growth over the next few years. The bank anticipates GDP growth of 2.9% in 2025, slowing to 2.2% in 2026 and further to 1.9% in 2027. This deceleration reflects a broader trend of economic moderation as the initial post-pandemic recovery momentum wanes.

Inflation is expected to follow a similar trajectory, with the Bank of Spain forecasting a rate of 2.1% in 2026, down from 2.7% in 2025, and further easing to 1.9% in 2027. This anticipated moderation in inflation could influence monetary policy decisions, as central banks may adjust their strategies in response to changing inflationary pressures.

The budget deficit is projected to remain stable, with forecasts of 2.5% in 2025 and 2.1% in 2026. Meanwhile, the debt-to-GDP ratio is expected to decline gradually, from 100.6% at the end of 2025 to 98.3% by the end of 2027. This reduction in the debt burden could be viewed positively by market participants, as it suggests improved fiscal sustainability.

Traders and market participants are likely to monitor these economic indicators closely, as they provide insights into the broader economic environment and potential policy responses. The projected slowdown in GDP growth and moderation in inflation could have implications for various asset classes, including equities, bonds, and currencies.

In the equities market, sectors sensitive to economic growth, such as industrials and consumer discretionary, may experience varying levels of investor interest based on these forecasts. Bond markets could see shifts in yield curves as investors assess the implications of lower inflation and stable budget deficits on interest rates. Currency markets may also react to these projections, particularly if they influence expectations around monetary policy adjustments.

Trader Insight:

• Some traders may consider monitoring the EUR/USD pair for potential movements influenced by the inflation outlook.
• Market participants are watching the iShares MSCI Spain ETF (EWP) for potential impacts from the GDP growth forecasts.
• Investors could assess the implications for Spanish government bonds, particularly in light of the projected decline in the debt-to-GDP ratio.

Disclaimer: This is not trading advice. For informational purposes only.