The Spanish government inspires economic optimism through consumption and foreign investment.

MadridPrivate household consumption and foreign investment are the two main factors that have led the Spanish government to improve its economic growth forecast for 2025. Specifically, Pedro Sánchez's government forecasts that gross domestic product (GDP, the indicator that measures a region's economic activity) will grow by an average of 2.7% in 2025. Business, Carlos Cuerpo, at a press conference this Tuesday, after the Council of Ministers.

This represents an upward revision of GDP growth of one-tenth compared to the April projections (2.6%). Looking ahead to 2026, the central government forecasts that the economy will grow by 2.2%, and by 2.1% in both 2027 and 2028. In this way, it lays out in black and white a scenario for the coming years that is slightly more optimistic than the average of the main supervisory bodies. "Spain will be the fastest-growing advanced economy [in 2025], and the outlook through 2028 is positive, with robust growth despite the international context," Cuerpo argued at a press conference.

The improvement for this year comes at a time when Donald Trump's tariffs have already taken effect. In fact, the Ministry of Economy maintains that the impact of the White House's new tariff policy on the economy will translate into a tenth of GDP. Added to this are geopolitical tensions, marked by the conflicts in Ukraine and Gaza.

Specifically, this Tuesday the Bank of Spain warned that the current geopolitical scenario, including the trade war with the United States, poses a downward risk to economic growth, especially because it fuels uncertainty. However, like the Spanish government, the supervisory body has also improved its growth forecast for the Spanish economy for 2025: it now expects GDP to grow by 2.6%, up two-tenths of a percentage point compared to the projection it presented in June (2.4%), as reported this Tuesday. Looking ahead to 2026, the body is more cautious than the central government and leaves the GDP rebound at 1.8%. "Economic growth will gradually slow down in the coming years," the Bank of Spain states.

Consumption, Employment, and Investment

The growth of the second quarter of this year (0.7%) has been the trigger that led the central government to improve its projection for 2025. The Bank of Spain also notes that the economy's performance in April, May, and June was more "vigorous" than expected. In fact, the supervisor even anticipates "greater dynamism" in activity in this third quarter (July, August, and September).

Behind this macroeconomic scenario, the Minister of Economy points to the current levels of employment and private household consumption, as well as foreign investment. The Bank of Spain also identifies consumption and investment as drivers of the economy. The supervisory body explains that both issues are closely linked to the interest rate cuts decided by the European Central Bank and, therefore, to the fall in the cost of credit, although it has also detected an improvement in household disposable income, which in recent months has been driven by the positive performance of wages and the decline in unemployment.

The supervisory body, however, warns that the pace of growth in all of this will moderate. In fact, it speaks of a "deceleration" in the medium term. Furthermore, it points out that the evolution of energy prices continues to put upward pressure on the inflation rate forecast for this year (2.5%, according to the Bank of Spain).

Finally, the Bank of Spain has improved its public deficit forecast and now places it at 2.5% of GDP for 2025, in line with the Spanish government.

New State Budgets

In addition to the current fiscal year, 2025, the new macroeconomic framework also includes forecasts for the next three fiscal years (2026, 2027, and 2028). These new projections represent progress in the preparation of a new general state budget (PGE) for 2026—the state is currently operating with the 2023 budget.

However, the Spanish government must take other steps in budgetary matters, although they will not be imminent. To begin with, the Ministry of Finance must approve a new spending ceiling and new stability targets. This is usually presented alongside the macroeconomic framework, although it now expects to do so in late September or early October. In parallel, it must convene a Fiscal and Financial Policy Council to communicate it to the autonomous communities.

Two weeks ago, the Spanish government approved the ministerial order for the preparation of the 2026 General State Budget, which included defense spending and the impact of the tariff war among its priorities. However, the delay in the schedule makes it difficult to imagine that new public accounts can be approved before the end of the year. The back-and-forth with the investiture partners doesn't help either. "The negotiations, to be fruitful, must proceed discreetly," argued Spanish government spokesperson Pilar Alegría at a press conference on Tuesday.

Plan to "shield" public housing

Also appearing at Tuesday's press conference was the Minister of Housing and Urban Agenda, Isabel Rodríguez, who presented the 2026-2030 State Housing Plan, a program the Spanish government plans to approve by the end of December. It proposes tripling investment in housing to 6.0%, with 40% being allocated by the autonomous communities. The plan, which primarily seeks to expand the public housing stock, includes a €30,000 grant for rent-to-own public housing and purchase aid in rural areas, among other measures. "We are detecting that empty houses in rural areas are not suitable for moving into," said Rodríguez.

"We are risking the dignity of people's lives and the future of young people. We are risking democracy. We will throw them into the hands of the far right, which promises magical solutions to complex problems," added the minister, who accused the PP of fueling the rise of the extreme right. "There's a degree of irresponsibility on the part of the right in not joining in solutions; it's fueling the growth of the far right," he said.