Spain / Fiscal Watch. January 2026

Summary

Public deficit is estimated to have declined to 2.4% of GDP in 2025, supported by the cyclical recovery and the reduced impact of the extraordinary factors observed in 2024. Compliance with fiscal rules would bring the deficit down to 2.1% in 2026 and 1.7% in 2027, provided additional consolidation measures are adopted.

Key points

• Key points:
• Budget execution data point to a positive evolution of the fiscal consolidation process in 2025, underpinned by strong growth in public revenues and some restraint on the expenditure side.
• The general government deficit is estimated to have declined in 2025 thanks the cyclical recovery in tax revenues, the normalization of tax rates, and the lower impact of the extraordinary factors observed at the end of 2024 more than offset upward pressures from higher defense spending, pension expenditure, and debt interest.
• Looking ahead, the strength of economic activity, together with the withdrawal of energy-related measures and DANA-related support, is expected to support fiscal adjustment in 2026 and 2027, despite rising pension expenditure and higher defense spending.
• In addition, compliance with fiscal rules will require an additional consolidation effort of 0.2 percentage points of GDP in 2026 and 0.4 percentage points in 2027, making it necessary to define new fiscal adjustment measures.
• These projections point to an average growth rate of primary expenditure net of revenue measures of around 3.5% over the 2025–2030 period, above the level committed to in the Fiscal and Structural Plan (an average of 3%).

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