Spain | Higher inflation, slower growth: the cost of the conflict

Summary

The quote “it is difficult to make predictions, especially about the future” is attributed to Niels Bohr. Today, it is even more so in an environment of high uncertainty. The increase in costs caused by the war between the U.S. and Israel against Iran will have negative effects on the Spanish economy.

Key points

• Key points:
• Energy prices are the main transmission channel, potentially raising the energy component of the CPI from a 3.1% decline in February to an increase of 10% in March.
• At BBVA Research, we have decided to maintain our GDP growth forecasts at around 2.4% on average per year for 2026 and 2027.
• BBVA Research’s current scenario assumes that oil prices at $100 per barrel will be temporary, with the annual average settling at $70, compared to the $90 currently priced in by the market.
• Each sustained 10% increase in the price of imported fuels could reduce cumulative GDP growth over two years by between one and three tenths of a percentage point.
• Fiscal policy should avoid broad, indiscriminate measures and instead focus on temporary, targeted support for households and businesses with less capacity to absorb rising costs.

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