Spain | More inflation, less growth: the bill of the conflict

Summary

The conflict between the US, Israel, and Iran will impact the Spanish economy through higher energy prices, raising inflation and cooling growth. GDP growth forecasts remain at 2.4% for 2026 and 2027, assuming the recent surge in oil prices will be temporary and stabilize around $70 per barrel.

Key points

• Key points:
• Inflation could rise from 2.3% in February to around 3.5% in March, driven by the energy component, which would shift from a 3.1% year-on-year drop to an increase of nearly 10%.
• Every sustained 10% increase in imported fuel prices could subtract between 0.1 and 0.3 percentage points from accumulated GDP growth over the next two years and add 0.3 points to inflation.
• The European Central Bank must maintain a firm message to anchor inflation expectations, while avoiding premature, procyclical measures that could worsen the economic slowdown.
• Governments should avoid indiscriminate measures and prioritize temporary, targeted aid for the households and businesses most exposed to rising costs.

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