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The Balearic Islands maintain strong growth but face a slowdown amid weaker tourism and structural constraints. Employment and domestic demand support growth, while housing, productivity and capacity constraints persist.

The Canary Islands maintain solid growth but face a slowdown due to tourism weakness. Consumption and employment are supporting economic activity, with challenges in housing, productivity, and energy.

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.

The Spanish economy is expected to grow by around 2.4% annually in 2026 and 2027, although with a heterogeneous regional landscape. Growth will be led by tourism- and service-oriented areas this year, while industrial regions could recover in 2027 thanks to stronger European demand.

Housing demand in Spain will remain solid driven by employment, wages, and immigration. However, the shortage of new supply will limit sales and maintain strong upward pressure on prices. Furthermore, the profitability of the construction sector remains low compared to Europe.

GDP is estimated to have grown by 2.8% in 2025, and the expansion is expected to continue, with growth of 2.4% in both 2026 and 2027. The outlook remains favourable, although structural challenges persist in a more uncertain international environment than three months ago.

Regional GDP is estimated to have grown by 3.1% in 2025, with further growth of 2.4% projected for 2026 and 1.9% for 2027, above the region’s historical average.