Spain: Economic and Political Overview

Economic Overview

service exports help net exports (data INE). As per the EU Commission, economic activity is projected to slow to 2.4% in 2026 and 1.9% in 2027, with domestic demand remaining the primary driver, fueled by consumption and increased investment. This is linked to the Recovery and Resilience Plan (RRP), solid corporate finances, and easing financing conditions. Furthermore, a rebound in imports should reduce the external demand contribution to GDP in 2026 and 2027.

After reaching 3.0% of GDP in 2024, the general government deficit decreased to an estimated 2.4% in 2025, as most measures to mitigate the economic and social impact of high energy prices were phased out (data EU Commission). The revenue-to-GDP ratio increased, partly due to the removal of VAT reductions, the special tax on electricity, and the exemption from the tax on the value of electricity. The phase-out of the fuel rebate also contributed to savings on the expenditure side. Risks to the projections stem from the costs associated with addressing the impact of recent floods in the Valencian Community. With unchanged policies, the government deficit is expected to hold at 2.4% of GDP in 2026, despite slightly higher interest expenditure. This decline is driven by slower growth in nationally-financed primary expenditure and positive tax revenue trends. Supported by strong nominal GDP growth, which outpaced the cost of debt servicing, the debt-to-GDP ratio decreased to 100.7% in 2025 (from 102.3% one year earlier). The ratio is expected to decrease more gradually in 2026-2027, reaching around 98.9%, due to a less favourable interest-growth rate differential (EU Commission). Annual HICP inflation declined to 2.7% in 2025, driven by the ongoing slowdown in energy and food price inflation. Underlying price pressures eased more gradually, particularly in services related to hospitality and transport. Headline inflation is expected to pick up in 2026, reaching 3.0%, with energy prices reversing the earlier downward trend in the coming quarters, before easing to 2.5% in 2027.

The strong performance of the labour market continued into 2025, with job creation accelerating sharply in the first half of the year and maintaining momentum into the third quarter. Employment growth remained robust in 2025, mainly driven by strong immigration flows. The unemployment rate is expected to decline steadily, reaching 9.9% by 2026 and 9.6% by 2027, down from 10.5% in 2025. Nominal wage growth outpaced inflation in 2025, with real income gains expected to moderate in 2026 and 2027. Spain remains a country with strong inequalities: according to the latest data by Eurostat, 26.4% of the population is at risk of poverty or social exclusion (the fourth-highest level in the EU), despite a relatively high GDP per capita (USD 38,627  in 2025 – World Bank).

Main Sectors of Industry

oys 76.8% of the active population. The tourism sector is pivotal for the country’s economy, being Spain’s main source of income, as the country is the second-most popular tourist destination in the world. According to the latest official figures, tourism contributed 12.3% of GDP and employed 11.6% of the total number of national insurance contributors in 2023, generating a turnover of EUR 184 billion. The banking sector is also important and is composed of ten banking groups under the direct supervision of the Single Supervisory Mechanism (representing more than 90% of the industry). The Bank of Spain directly oversees the remaining 139 entities, including 47 less significant institutions and 92 subsidiaries or branches of foreign organizations (European Banking Federation).

Source: World Bank, Latest data available.

Business environment ranking

Score:

Regulatory Framework: 79.35/100
Public Services: 76.76/100
Operational Efficiency: 64.55/100

World Rank:

Regulatory Framework: 3/101
Public Services: 3/101
Operational Efficiency: 36/101

Source: World Bank Business Ready (B-READY) 2025

Sources of General Economic Information

Ministries

Ministry of Economy, Commerce and Business
Ministry of Digital Transformation
Ministry of Agriculture, Food and Environment

Statistical Office

National Statistical Institute

Central Bank

Bank of Spain
European Central Bank

Stock Exchange

Spanish stock markets

Other Useful Resources

Economic-financial information centre of the Ministry of Finance

Main Online Newspapers

Daily newspaper El País
Daily newspaper El Mundo (in Spanish)
Daily newspaper Expansion (in Spanish)
Daily newspaper Cinco Días (in Spanish)

Economic Portals

Invertia

Political Outline

Current Political Leaders

King: Felipe VI (since 19 June 2014), hereditary
President of the Government and Prime Minister: Pedro Sanchez (since June 2018), Spanish Labour Socialist Party

Next Election Dates

Senate: July 2027
Congress of Deputies: July 2027

Main Political Parties

In the autonomous regions, several parties form coalition governments to garner more power. The December 2015 elections put an end to the two-party system. The main parties/alliances in the last elections held in 2023 were:

- Spanish Socialist Workers Party (PSOE): centre-left, a democratic socialist party and the oldest party
- People’s Party (PP): centre-right, sometimes referred to as the 'popular party'. It is the second largest political party in Spain
- Sumar: political alliance whose main policies include economic equality, social justice, and democratic reform. It was formed, among others, of: the left-wing anti-austerity Unite Movement (Unidas Podemos); United Left (IU) which included several regional parties; the Communist Party of Spain (PCE); and other regional parties.
- Vox: right-wing, Spanish Nationalist party

Other significant political forces include:

- Republican Left of Catalonia (Esquerra Republicana de Catalunya - ERC): centre-left, catalan independentism
- JxCat - JUNTS: a coalition of two Catalan nationalist parties: Junts per Catalunya (JxCat) and Units per Avançar (UA).
- EH Bildu (EHB): left-wing, Basque independentism
- Canarian Coalition (CCa): a Canarian nationalist party
- The Party is Over (Se Acabó La Fiesta - SALF): right-wing to far-right and anti-establishment, founded by the social media personality Alvise Pérez. It has no representation in the parliament but obtained 3 seats in the 2024 European parliament elections.

Type of State

Spain is a constitutional monarchy based on a parliamentary democracy.
Power is highly decentralized; the autonomous communities have a high level of legislative, executive and fiscal autonomy.

Executive Power

The King is the Head of the State and the commander-in-chief of the army; his role is mostly ceremonial. Following legislative elections, the leader of the majority party or the majority of the coalition is appointed Prime Minister by the Sovereign then elected by the parliament for a 4-year tenure. The Prime Minister is the head of the government. He holds executive power which includes the execution of the law and the management of the routine affairs of the country. The Council of Ministers is appointed by the king on the recommendation of the Prime minister. There is also a Council of State which enjoys the role of the supreme consulting body of the government, but its recommendations are not binding.

The President of each Autonomous Community is from the majority party of the majority coalition winning elections of the Parliaments of the Regions which take place every 4 years. The President forms a government whose «ministers» are appointed under the title «consejeros» and seconded by a cabinet and director generals, etc. who are in charge of each Department heading the sectors for which the Autonomous Community has jurisdiction in substitution of the Spanish State (single administration).

Legislative Power

The legislative power is bicameral. The Parliament, called Cortes Generales, is made up of:
- The Senate which has 265 seats. Its role is that of representing the territories (Autonomous Communities and Departments). 208 senators are elected by proportional representation for 4 years. 57 senators are elected by parliaments of the 17 autonomous communities;
- The Congress of Deputies which has a minimum of 300 seats and a maximum of 400 (currently 350). The deputies are elected by universal suffrage for 4 years from departmental constituencies. There are allotted one minimum representation and the remaining is proportional to their population. To avoid splitting up which is harmful to the stability of the Chamber, the D’Hondt system is applied.
The executive wing of the government depends directly or indirectly on the parliament's support, often expressed by a vote of confidence. The legislative power belongs to the government and the two houses of parliament at the same time. The Prime Minister does not have the authority to dissolve the parliament directly, but he can recommend its dissolution to the king. The Spanish citizens enjoy considerable political rights.
The 17 Autonomous Communities also have a legislative power exercised by their unicameral Parliament within the limit of jurisdictions fixed by each of their statutes.