The Bank of Spain anticipates that the war measures will dampen the impact on GDP and prices

MadridThe conflict in the Middle East has not gone unnoticed in the update of the Bank of Spain's macroeconomic forecasts, despite the short timeframe between the outbreak of the war and the preparation of a new report. The supervisory body acknowledges that the attack by the United States and Israel on Iran and its ramifications in the region will have an impact on the growth of the Spanish economy, but above all on the evolution of prices. However, it estimates that the package of fiscal measures from the Spanish government, which the Congress validated this Thursday, will help to "cushion" the economic shock. was validated by Congress will help to "cushion" the economic shock.In general terms, it forecasts that gross domestic product (GDP, the indicator used to measure the size of an economy) will grow by 2.3% in 2026, as is clear from the report published this Thursday. It may seem contradictory because it represents an improvement compared to the forecasts from December, when the Bank of Spain forecasted that the Spanish economy would grow by 2.2% in 2026. However, before the war, the supervisory body indicated a growth of 2.4% this year, meaning much more favorable. This good economic performance is explained by the momentum of the last months of 2025 (in the fourth quarter the economy rebounded by 0.8%) and the start of 2026. But the impact of the conflict was 0.4 tenths on this forecast, so economic growth would have stood at 2% if the announced measures had not been implemented, according to the Bank of Spain.

Regarding inflation, the trend is more unfavorable. In this sense, the economic dynamism from private family consumption and the services sector was already driving prices up even before the war, and the Bank of Spain predicted that average inflation would stand around 2.7% this 2026 (in December it placed it at 2.1%). The war further fuels this trend due to the pass-through of gas and oil prices onto electricity, and food, which will also become more expensive due to the conflict's effects on fertilizers, as well as the so-called second-round effects: for example, an increase in costs for companies. All of this meant an increase of 0.8 tenths in the inflation forecast. With the decree of measures, the Bank of Spain leaves the forecast for the average inflation rate in 2026 at 3%, almost a point higher compared to three months ago.

Regarding the package of fiscal measures, which includes direct aid and subsidies, the Bank of Spain has highlighted that it is "well-defined," in the words of the organization's Director General of Economy, José David López. However, López also acknowledged that they would have preferred it to be even more "focused." "It suffers from a redistributive deficit," indicated the director of the economic area at an informative meeting.

Different scenarios

In the same way as the European Central Bank (ECB), the Bank of Spain is working with different scenarios depending on the evolution of the conflict in the Middle East. In a central scenario, the risks to the forecasts published this Thursday are oriented downwards regarding economic activity, meaning that growth could slow down. Whereas in the case of prices, the risks linked to the war are pushing the forecast upwards. Therefore, the average inflation in 2026 could be higher.

"A higher intensity of the warlike conflict and its prolongation for several months —a possibility that, in light of the most recent events, seems to be gaining more weight— would keep the prices of energy raw materials high and would increase the probability that second-round effects on wages and prices along the production chain would materialize. All this could translate into lower economic activity dynamism and higher inflation rates than currently projected in the central scenario," concludes the Bank of Spain.