Our traffic light chart indicates that the economy continues to expand in Q3, albeit at a slower pace than in Q2. The European Commission’s economic sentiment indicator (ESI) fell to 105.1 points in September (vs. 107.0 in August, 105.0 in Q2), while the activity data confirm the economy’s dynamism in Q3. Retail sales and card purchases grew 6% year-on-year in August, while vehicle sales registered an increase of +14.8% in Q3. On the other hand, the temporary reduction in income tax withholdings, including retroactive payments since January 2025 received in August and September, is expected to boost household disposable income in Q3, representing an additional upside risk for GDP growth in the second half of the year. In September, we revised our macroeconomic scenario but maintained our GDP growth forecast unchanged for both 2025, at 1.6%, and 2026, at 2.0%.

In the year up until Q2 2025, disposable income rose by 8.5% year-on-year. This has been supported mainly by wage growth (wages represent 70% of gross disposable income), which has reached a solid 7.7% in an environment with a dynamic labour market, including record levels of employment and low unemployment figures. In the same period, consumption maintained a solid growth rate (6.3% year-on-year) in nominal terms, although it is below that of disposable income. This contributed to the household savings rate rising to 12.6%, a level not seen since 2003 (with the exception of during the pandemic).

After five consecutive months on the rise, headline inflation fell to 2.4% year-on-year (–0.4 pps compared to August), while core inflation fell to 2.0% (–0.4 pps). However, the average inflation forecast for 2025 was revised upwards, from 2.1% to 2.3%, due to the persistence of inflation in services and the recent behaviour of unprocessed food prices, which have registered year-on-year rates close to 7% in recent months.

Data from the House Price Index (HPI) for Q2 2025, published at the end of September, reveal continued strong momentum, with a year-on-year increase of 17.2% (4.7% quarter-on-quarter). Over the past 12 months, house price growth averaged 13.8%, prompting an upward revision of our HPI growth forecast for 2025, from 12.4% to 15.8%. Early Q3 data confirm this positive trend: bank appraisals for mortgage lending grew by 18.1% year-on-year in August, and the median price per square metre (1,965 euros) is 12.5% above the level registered at the end of 2024.