Finance
Bank of Spain upgrades growth outlook but many Spaniards feel stretched
Published by Global Banking & Finance Review®
Posted on December 23, 2025
4 min readLast updated: January 20, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on December 23, 2025
4 min readLast updated: January 20, 2026
Spain's central bank raises economic growth forecast, but many Spaniards feel financial strain as wages lag behind inflation.
By Jesus Calero
MADRID, Dec 23 (Reuters) - Spain's central bank raised its outlook on Tuesday for economic growth next year, reinforcing the country's position as one of the euro zone's fastest-expanding economies even as higher living costs squeeze household finances.
The Bank of Spain expects the economy to grow by 2.9% in 2025, up from a previous forecast of 2.6%, and anticipates expansion of 2.2% in 2026 and 1.9% in 2027.
The recovery feels academic to many Spaniards who are struggling to cope with food bills as wages have yet to keep up with inflation.
But compared with the rest of the sluggish euro zone, Spain has emerged as an outlier, supported by strong domestic demand, a rebound in tourism and inflows of European recovery funds.
Population growth, driven by immigration, has also boosted consumption and labour supply.
The central bank said activity was likely to have expanded between 0.6% and 0.7% in the final quarter of this year, broadly matching the pace seen over the summer months.
Inflation is expected to ease to 2.1% in 2026 and 1.9% in 2027 from an estimated 2.7% this year.
MILLIONS OF HOUSEHOLDS FEEL POOR AS WAGES LAG
Yet for millions of households, the question is not whether inflation is easing, but whether pay is catching up.
Higher food and housing prices, slow real wage recovery and a labour market concentrated in low-productivity services mean many families feel poorer than before inflation peaked in 2022 as pandemic disruption eased.
Despite nominal wage gains, real wages in Spain remain below their pre-pandemic level - in contrast to in many neighbouring EU and OECD countries where purchasing power has fully recovered.
According to official statistics, Spaniards' median net monthly salary in 2024 was 2,001 euros ($2,344). In cities such as Madrid and Barcelona, average monthly rents for a whole apartment range from 1,200 to 2,500 euros, according to data from property website Idealista.
On a net basis, Spain's minimum wage exceeds 60% of the median wage, the OECD says, meaning many workers earn a very similar level of pay and only a small portion of the population are wealthy.
Wage growth has been weakest in tourism, retail and hospitality, economists told Reuters, highlighting how headline growth masks sharp disparities across households.
"The market is blind to distributive aspects; it tends to concentrate income and wealth," said Antonio Gonzalez of the Economists Against the Crisis think tank. "You can feed the statistics while one person eats the whole chicken."
Precarious contracts and decades of weak wage growth have left many families with thinner buffers, said Juan Carlos Martinez Lazaro, a professor at Madrid's IE Business School.
PURCHASING POWER WEAKENED AS PRICES OF STAPLES HIGH
Inflation has slowed, but purchasing power is still depleted. Food prices are around 30% higher than in 2020, far outpacing wage growth over the same period, Bank of Spain data shows.
Between January and November, prices of staples such as eggs jumped 30%, while coffee rose 17%, beef 15.6% and chocolate more than 13%, according to the National Statistics Institute.
Olive oil prices, by contrast, fell more than 30%.
Economists say inflation pressures have shifted from energy to more domestic factors, with prices in hospitality and tourism rising faster than the euro zone average as margins expand.
"The macroeconomy is doing very well – the envy of advanced economies," Martinez Lazaro said. "But that prosperity is not reaching many workers."
Prime Minister Pedro Sanchez acknowledged the gap this month, saying the economy was moving in the right direction, but purchasing power remained weak.
The Economy Ministry told Reuters repeated shocks since the financial crisis in 2008 had fuelled a sense of economic insecurity that headline growth and jobs data fail to capture.
It added purchasing power between 2019 and 2024 grew about five times faster than during the previous expansion and measures were under way to expand affordable housing.
Yet without stronger productivity growth or faster wage gains, economists say, the disconnect between Spain's macro strength and household finances may take time to disappear.
(Reporting by Jesús Calero and David Latona; Editing by Andrei Khalip and Barbara Lewis)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured annually.
Gross Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's borders in a specific time period.
Real wages refer to the income of workers adjusted for inflation, reflecting the actual purchasing power of their earnings.
Purchasing power is the amount of goods and services that can be bought with a unit of currency, influenced by inflation and income levels.
Economic growth is an increase in the production of goods and services in an economy over a period, often measured by GDP.
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