Spanish Economy to Grow 2.9% in 2025 but Faces Challenges Ahead

According to the latest panel survey by Funcas on November 13, 2025, Spain's economy is forecasted to grow by a robust 2.9% in 2025, reflecting an upward revision of 0.3 percentage points from earlier estimates. This optimism follows surprisingly strong economic performance in the third quarter, which saw GDP grow 0.6%. The growth is mainly fueled by domestic demand, expected to add 3.3 percentage points to GDP, although external factors are projected to subtract 0.4 points. The forecast for 2026 shows a modest slowdown with GDP growth expected at 2.1%, again driven mainly by domestic demand (2.3 points) while external influences slightly detract (0.2 points). Inflation, which stood at 3.1% in October due to rises in energy, food, and services prices, is predicted to fall to 2.6% by year-end 2025, with average annual inflation rates of 2.6% for 2025 and 2.1% for 2026. The labor market outlook is positive, with employment projected to grow by 2.4% in 2025 and unemployment rates declining to 10.5%, and further down to 10% in 2026. Public deficit expectations have also improved, expected to decrease to 2.7% in 2025 and 2.6% in 2026. Despite these positive signs, uncertainties in the economic environment remain, and interest rates are likely to stay stable, with the European Central Bank's deposit facility rate predicted to hold at 2% through the forecast period. In parallel, Spain sees strategic opportunity in deploying carbon capture, use, and storage (CCUS) technologies to decarbonize industry, which currently accounts for 33% of emissions. CCUS could enhance industrial competitiveness and maintain employment in key regions. However, challenges including profitability concerns and the lack of a clear regulatory framework pose obstacles. Spain's abundant renewable energy resources and suitable geological conditions for CO₂ storage form a strong foundation for CCUS expansion, but realization requires a comprehensive national strategy, clear targets, and effective public-private investment incentives.