The OECD improves Spain's GDP forecast, but warns of high and persistent inflation

The OECD has raised its forecast for Spain's GDP to 2.6% in 2026, but warns of high inflation, projecting it at 3.7%. The organization highlights the resilience of the global economy amid crises, including the Covid pandemic, the Ukraine war, Trump's trade offensive, and the Middle East conflict. These events have made the global economy more robust and better equipped to handle various shocks, such as commercial, energy, and inflationary impacts.

The OECD's new Economic Perspectives report, published on Wednesday, is less pessimistic than it was a few months ago, focusing on a central scenario where global growth improves slightly. While the world economy's growth has moderated, it shows resilience, the OECD notes, but cautions that the outlook remains highly uncertain, largely dependent on the evolution of the conflict in the Middle East and the surge in energy prices.

The OECD warns of more intense inflationary pressures, weaker real wage growth, and higher interest rates, which could slow down the pace of growth in many economies in the short term. However, the organization believes that the strong AI activity and the expected moderation in energy costs will help bolster activity throughout 2027.

Spain is one of the countries benefiting from these upward revisions, with the OECD now projecting its GDP to grow by 2.6% this year, a 4% increase from June's estimate, and in line with the government's targets. However, the report does not include the latest revisions to Spain's GDP performed by the INE, which lowered Spain's 2025 growth from the previously estimated 2.8% to the current 2.6%, a change that implicitly incorporates a smaller drag than initially calculated.

This adjustment should lead to future downward revisions of the 2026 projections. Nonetheless, the OECD's forecast reaffirms the momentum of the Spanish economy and consolidates its leadership among the major economies in the eurozone. The OECD expects Spain to outpace the eurozone's growth by a significant margin, with Spain growing by 1.8% in 2027 (a 10% increase from the previous estimate) compared to the eurozone's 1% growth (2% less than the previous estimate).

In Europe, the OECD sees signs of recovery in Germany, which is projected to grow by 1.1% this year (4% more than the June estimate) and the same in 2027. France, however, is experiencing a severe crisis and is expected to grow by only 0.4% this year, a 3% decrease from the previous forecast. Italy is projected to grow by 0.9% in 2027, a 4% increase from the previous prediction.

If the OECD's predictions come true, Spain's GDP will also grow faster than that of the US this year, despite the OECD's improvement in the forecast by 2%, reaching 2.2%, but it will not surpass it in 2027, when the US economy is expected to grow by 2.1%, fueled by strong investment in AI that compensates for the negative impact of slowing consumer spending and real wage growth.

In other words, Spain will continue to outperform the developed economies, albeit with some baggage on its back. Firstly, there will be persistent and rising inflation, reaching an average of 3.7% by the end of 2026, up 4% from the previous June prediction, and remaining elevated in 2027 at 3.4%. Spanish inflation will significantly exceed the eurozone average of 3% and even outpace its main European peers, including Germany at 2.9%, France at 2.5%, and Italy at 3%.

This will result in a loss of competitiveness for Spanish companies and their exports, most of which go to the European bloc itself. Spanish inflation will also slightly surpass the US inflation, which is expected to reach 3.6% by the end of 2026 but will ease to 2.6% in 2027. And what about China? As the world's second-largest economy, China is projected to grow by 4.5% this year, the same forecast the OECD made a few months ago but 5% lower than in 2025, a 10% worsened projection compared to the previous one.

This means slower growth due partly to the gradual rise in overall inflation, which will dampen consumption as the growth in investment slows down.