Spain’s housing market has been identified as one of the main sources of risk to the country’s economic outlook, according to the latest report from the Banco de España (Bank of Spain).
Economists at the institution say future GDP growth will be shaped by a mix of external and domestic factors, but warn that housing pressures have become significantly more important compared with previous forecasts.
On the domestic front, the Bank of Spain highlights three main sources of uncertainty: Inflationary pressures linked to wages and business margins, the evolution of the housing market and investment in residential construction.
The report stresses that the relevance of these risks has increased notably since its last projections were made.
On housing specifically, the report warns that price growth remains high, driven by strong demand and a rigid supply side.
It adds that there is considerable uncertainty surrounding future levels of residential investment.
Recent data suggests a moderation in the pace of new building permits, and the Bank points to ongoing administrative and regulatory bottlenecks affecting both land availability and construction activity.
‘In this context,’ the report notes, ‘residential investment could lose momentum in the coming years compared with what was observed in 2025.’
Migration could push construction and growth higher
That said, the Bank of Spain also outlines an upside scenario.
Rising housing demand linked to migration flows and net household creation could eventually lead to a renewed increase in residential construction. If that were to happen, it would support higher levels of investment and potentially lift economic growth.
Under this more favourable scenario, GDP growth could be between 0.1 and 0.3 percentage points higher in 2026 and 2027 than in the central forecast, particularly given the execution timeline of housing investments.
Updated GDP forecasts
In its revised projections, the Bank of Spain now expects:
- GDP growth of 2.9% in 2025 (three tenths higher than previously forecast)
- 2.2% in 2026 (four tenths higher)
- 1.9% in 2027 (two tenths lower)
The upward revisions for 2025 and 2026 reflect stronger recent economic data, resilient private consumption and a more positive contribution from the external sector – especially non-tourism services exports.
Inflation, jobs and public finances
The Bank of Spain forecasts:
- Average inflation of 2.7% in 2025, easing to 2.1% in 2026 and 1.9% in 2027
- Upward revisions for 2025–26 due to stronger recent price growth, collective wage agreements and the broader macroeconomic context
- A downward revision for 2027, reflecting expected falls in energy prices
In the labour market, employment growth is expected to slow:
- 2.7% in 2025
- 2% in 2026
- 1.4% in 2027
Even so, unemployment is forecast to continue falling gradually, reaching 9.6% by 2027, while wage growth is expected to moderate to around 3%.
On the fiscal side, deficit forecasts for 2025 and 2026 remain broadly unchanged, but the 2027 deficit has been revised up to 2.5% of GDP, largely due to higher public sector wage costs.
Public debt, however, is expected to fall thanks to stronger nominal GDP growth, declining from 100.6% of GDP in 2025 to 98.3% by 2027.
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