A differential expansive cycle

The Spanish economy is starting the 2025-2026 academic year with a certain advantage. The international context is fragile. Europe continues to show signs of weakness. In the US, the Trump administration is filling the pillars that support its economy with cracks, and in China the housing crisis has not yet reached its bottom. On the other hand, the Spanish economy is showing solid domestic demand and a capacity to continue to drive growth, if the international context allows it and if it can successfully overcome the main challenges it faces following the summer break.

The GDP figure for Q2 2025 confirmed the boom that the Spanish economy is currently enjoying. The quarterly growth rate stood at 0.7%, slightly higher than expected, primarily supported by domestic demand and, above all, private consumption and investment. After several years spearheaded by foreign demand, the timing of this change is particularly favourable. The ECB’s normalisation of interest rates, a private sector with a broadly sound financial position and population growth are acting as support factors – and they are expected to continue to do so in the near future. CaixaBank Research’s forecast scenario anticipates growth of 2.4% for 2025 and 2.0% for 2026. However, following the latest published data, the reality is likely to exceed these forecasts – which we will revise next month. This message stands out in the fragile international context.

To consolidate the current expansive cycle, it is essential that the growth of economic activity is sustainable, that new imbalances are not generated and that the existing ones are corrected. In this regard, one of the key challenges of the Spanish economy lies in the real estate sector. Housing demand has grown sharply in recent years, as witnessed by the increase in the number of both households and home sales. On the other hand, the housing supply is reacting slowly and insufficiently to meet this demand. Pressure on house prices is the main reflection of this imbalance. As set out in the Real Estate Sector Report just published by CaixaBank Research, the housing deficit accumulated in recent years exceeds half a million homes. Such an imbalance will be difficult to correct, so the price pressures are likely to remain high in the short term. Decisive and wise action is urgently needed to address this mismatch and begin to correct it as soon as possible.

A second front which deserves special attention is the public accounts. Spain’s public debt has been steadily corrected in recent years. All the indicators suggest that this year the deficit will finally fall below 3.0%, a milestone that will reinforce this process and help set the Spanish economy apart from other economies currently on investors’ radars, such as the US and France. Both of these economies have a public deficit in excess of 6% and there are serious doubts about their ability to turn this situation around. The threat of a rebound in sovereign risk premiums is raising its head again in the financial markets, and when this happens many investors find it difficult to differentiate between economies. We do not need to go far back in time to find good examples of this. In this context, it is important to make the most of this good moment in the economy in order to bolster the commitment to adjusting Spain’s public accounts, and to offer the utmost visibility and credibility possible regarding the future path of revenues and expenditures in the short and medium term.

Finally, special attention must also be paid to the export sector. Much of the recent success of the Spanish economy is based on its productive sector opening up to foreign markets. Faced with the collapse of domestic demand triggered by the financial crisis almost two decades ago, many companies made a leap of faith and obtained a foothold in the international market. This allowed many jobs to be saved and, over the years, many more were created. This greater openness to foreign markets has also served as a catalyst for increased productivity in many sectors and, at the macroeconomic level, has enabled a large trade surplus to be maintained, which has helped reduce the country’s high foreign debt. The level of tariffs finally imposed by the Trump administration has been lower than initially proposed, but the agreement seems fragile – who knows if tomorrow the US president will change his mind? – and, in any case, the current global geopolitical tensions require maximum prudence. In this context, it is essential to support the export sector to continue to expand and diversify its international customer base. If the main economic imbalances are corrected and the buoyancy of both domestic and foreign demand are combined, then the Spanish economy’s expansive cycle will be differential.