Spain | Partying like it’s 1999

Summary

The economy is showing a growth pattern similar to that of the years prior to the global financial crisis, driven by the same combination of factors. The risk—just as back then, and without necessarily leading to the same outcome—is that this model could generate imbalances if it is not accompanied by structural reforms.

Key points

• Key points:
• There will be a growing reliance on domestic demand and an increasingly negative contribution from external demand. While between 2002 and 2006 the contribution of domestic demand to growth reached around 4 percentage points (pp), in 2025 and 2026 it is expected to be close to 3.5 pp.
• As for external demand, both periods would show negative contributions of around 1 pp and 0.8 pp, respectively. The latter represents a reversal of what was observed in the period following 2020.
• This could be particularly concerning if inflation remains persistently above that of the euro area, as occurred at the beginning of the century (≈ +1.0 pp on average per year) and in the second half of 2025. This could again be compounded by public policies that are not well calibrated to Spain’s economic cycle.
• Another similarity will come from the increase in investment, particularly in construction, which could account for 20% of demand growth in 2026 and 2027—similar to what was observed between 2002 and 2007 (25%).
• Likewise, the recovery in consumption and gross capital formation could lead to a deterioration of the current account balance of 2 pp of GDP between 2025 and 2027.

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