Spain | Fiscal Watch. April 2026

Summary

Public deficit fell to 2.4% of GDP in 2025, in line with expectations, supported by strong revenue growth and temporary factors. Under a no-policy-change scenario, the deficit is expected to decline to 2.3% of GDP in 2026 and stand at 2.4% by the end of 2027.

Key points

• Key points:
• Strong economic activity, together with the unwinding of DANA-related support measures, will support fiscal adjustment in 2026. Looking ahead to 2027, a moderation in activity and upward pressures from debt servicing costs and pensions will lead to a slight deterioration in the fiscal balance.
• The scenario no longer assumes compliance with fiscal rules, in a context of extended budgets and high political fragmentation, reducing the expected fiscal adjustment in the short and medium term.
• The conflict in the Middle East limits the scope for fiscal adjustment, due to higher energy prices and the cost of relief measures (with an average monthly cost of around €1 billion). These measures are not included in the forecasts, as they were approved after the macroeconomic scenario was prepared.
• The public debt-to-GDP ratio has resumed a downward path after the pandemic-driven increase, mainly supported by nominal economic growth. In a higher interest rate environment, debt stabilisation will increasingly depend on generating primary surpluses and maintaining fiscal discipline.
• Fiscal policy faces significant structural challenges in a context of high debt levels and rising spending needs (ageing, defence spending, investment requirements, etc.). In this context, improving expenditure efficiency and advancing growth-enhancing reforms will be key to ensuring fiscal sustainability.

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