The Spanish government injects economic optimism despite the war in Iran

MadridEconomic optimism despite the war in Iran. The Spanish government updated the macroeconomic framework this Monday and forecasts that the economy will grow by 2.6% in 2026 (four tenths more than previously predicted) and by more than 2% in the next three years, i.e., until 2029, as detailed in a press conference by the First Deputy Prime Minister and Minister of Economy, Carlos Cuerpo, after a cabinet meeting where a new package of measures was precisely approved to mitigate the economic impact of the conflict, especially in energy matters.

The decision to revise economic growth upwards clashes with what the Spanish government itself feared at the start of the conflict in the Middle East: a negative impact on the economy of between one and eight tenths of the gross domestic product (GDP, the indicator that measures the size of an economy). Now, however, it argues that the anti-crisis plan deployed three months ago due to the war has allowed the economic shock to be "cushioned", particularly on prices and families' purchasing power: sources from the Ministry of Economy calculate that the measures have helped to contain inflation to some extent. And it is this "stability" in prices in recent months that has served, among other things, as a basis for revising the macroeconomic framework.

The good performance of some macroeconomic indicators and the advances, albeit small and fragile, towards a peace agreement between the United States and Iran, and the maintenance of a ceasefire that helps to restore normality in the Strait of Hormuz, have also helped. "Uncertainty has moderated," recognized Cuerpo.

A growth of 2.6% for this 2026 means tripling the growth forecast for the euro area, which the European Commission places at 0.9%. Already last year, Spain positioned itself as one of the most robust advanced economies (the Spanish economy grew by 2.8%), thanks to private consumption, investment, and the dynamism of the labor market. In a statement, the Ministry of Economy again points to these elements, especially employment – it projects, for example, that the unemployment rate will fall below 10% in 2026 – and adds an improvement in productivity.

However, the Spanish government's new estimate aligns with what other organizations have done, although it is indeed the most positive. For example, last week the Independent Fiscal Authority (Airef) revised upwards the growth of the Spanish economy for this 2026: to 2.4%. The Bank of Spain maintains growth at 2.3%, while the International Monetary Fund (IMF) is more cautious and places it at 2.1%.

New spending ceiling

"We have dynamic growth, a more resilient economy capable of facing shocks more flexibly compared to previous occasions," highlighted Cuerpo, who once again contrasted the situation of the Spanish economy after the 2008 crisis with the current situation, after the covid-19 pandemic or the war in Ukraine. This is, in fact, one of the weapons to which Pedro Sánchez's government clings when defending its management over the last eight years. And now it will also serve to outline expansionary General State Budgets (PGE) for 2027, while also being constrained by European fiscal rules.

The update of the macroeconomic framework is an essential step for the preparation of new public accounts in the State – it is the basis on which the PGE are projected – and which Pedro Sánchez has committed to present despite the moment of fragility through which the legislature is going, which makes the approval of laws in Congress difficult.

With the approval of the macroeconomic framework, the next step is to approve the spending ceiling – it will predictably be a record – and the deficit and debt targets or stability path for the different public administrations. In fact, the intention is to approve everything next week and convene a Council of Fiscal and Financial Policy (CPFF) with the autonomous communities to break down the proposal.

The forecast is that the deficit and debt targets will be voted on this very month of July in Congress. In case they lapse because the partners do not support them, as has happened on previous occasions, they will have to be voted on a second time. If they lapse again, the Spanish government will have to assume the current deficit and debt targets.

For the partners of the investiture bloc, the deficit target, that is, the spending margin, which is set for the autonomous communities, has been paramount in deciding the direction of their vote. Here, for example, is where Junts has always put up the most obstacles. "We are working with a scenario to meet the calendar," Cuerpo defended this Monday regarding the presentation of the budgets before the end of the year.