Slowdown

Since 2022, when the war in Ukraine broke out, most of our forecast revisions have been upwards. Back then, amid concerns over soaring energy prices, particularly gas prices, we revised that year’s growth forecast downwards by more than 1 percentage point.

Now, with a new conflict in the Middle East pushing up energy prices and fuelling uncertainty, we are once again compelled to adopt a cautious stance and revise our growth forecasts downwards. This time, the adjustment is more moderate (0.3 pps). Nonetheless, we still consider that the most likely scenario is that the Spanish economy will maintain a dynamic growth rate for the year as a whole, above 2%.

The start of the year was, in fact, better than expected. Growth accelerated to 2.7% year-on-year, despite the conflict pushing up energy prices as early as March. However, the closure of the Strait of Hormuz has kept these prices high and the effects are beginning to become visible. Inflation, despite the mitigating measures adopted by the government, has remained above 3% since March and is expected to approach 4% in the coming months. This surge in inflation represents a headwind for household consumption, as evidenced by our Real-Time Consumption Monitor, which is already showing a slowdown so far this quarter.

From a business perspective, the PMI also points to a moderation in growth as it is below the figures for Q1, albeit still in expansionary territory. In other words, it suggests a slowdown, not a contraction in activity. Similarly, the CaixaBank Research sectoral indicator, recently updated in the Sectoral Observatory, shows a loss of dynamism in most branches of activity, particularly in energy-intensive sectors. Conversely, the tourism sector is benefiting from the current geopolitical situation in the Middle East. Many people, especially Europeans, who had planned to spend their holidays in that region are coming to Spain.

For now, the labour market continues to show strong figures. However, it typically has greater inertia than other areas of the economy, so shifts in trends tend to be reflected with a certain delay.

The slowdown that is beginning to appear in the indicators is incorporated into the new CaixaBank Research forecasts, detailed in the following pages of this Monthly Report. Broadly speaking, the scenario anticipates positive activity growth, albeit more restrained between the second and third quarters of the year. Energy prices are expected to moderate by the end of 2026, according to oil and gas futures markets, which should lead to a slight re-acceleration of growth. The strong financial position of households and businesses will partially cushion the shock, allowing consumption and investment to continue leading the growth of the Spanish economy. In the external sector, the weakness in goods exports will be offset by the resilience of service exports, including both tourism and non-tourism services.

Assuming that the conflict does not become entrenched and the rise in energy prices is contained and temporary, the Spanish economy has enough supports to absorb the shock and keep growing, albeit at a slower pace.

Incidentally, growth in 2022 ended up being higher than we had anticipated before the outbreak of the war in Ukraine. The resilience of the labour market and the export sector, along with the support measures implemented, contributed to sustaining highly dynamic growth. Let’s hope we are wrong again this time.