Macroeconomic projections and quarterly report on the Spanish economy. Third quarter 2026

Box 1 The Banco de España Business Activity Survey: 2026 Q3

Introduction

This box presents the results of the 2026 Q3 edition of the Banco de España Business Activity Survey (EBAE). Drawing on a sample of Spanish non-financial corporations, the EBAE assesses every three months how business activity has fared in the current quarter and its outlook for the short term.⁴ In particular, the survey compiles qualitative information on respondent firms’ turnover, employment, business investment and costs and prices.⁵ In addition, in this edition firms were asked for the second consecutive quarter how much the effects of the conflict in Iran are impacting their business activity. The fieldwork was conducted between 7 and 21 September. The online survey was sent to a sample of almost 15,000 firms, more than 30% of which regularly respond to Central Balance Sheet Data Office surveys. In line with participation in previous quarters, close to 7,000 valid surveys were received (a response rate of 40%). This box details the main findings drawn from the responses received.

Turnover, employment and investment

The survey results suggest that turnover declined in 2026 Q3 compared with Q2, consistent with the seasonal pattern typically observed in the third quarter of each year (Chart 1.a). After adjusting for seasonal effects,⁶ turnover shows a slight increase this quarter. These favourable developments are consistent with the growth signalled by the composite PMI based on data to September. The performance by sector was mixed: turnover increased in certain sectors of services, such as hospitality and information and communication and administrative activities, whereas it declined somewhat more sharply in agriculture, professional, scientific and technical activities and leisure. These relatively encouraging movements in activity are set against a backdrop in which firms perceive that the conflict in Iran is having a less negative impact on demand than in Q2. For instance, the proportion of firms reporting negative or very negative effects of the conflict on international demand fell to 27.8% (compared with 30.3% in Q2) and that reporting negative or very negative effects on domestic demand dropped to 33.7% (down from 36.5% in Q2).

The respondent firms reported a slight increase in employment relative to the previous quarter (Chart 1.b), whereas the seasonally adjusted series shows a decrease,⁷ albeit somewhat smaller than in Q2. By sector, employment performed more positively in administrative activities, hospitality and information and communication, while it decreased in agriculture, real estate activities and wholesale and retail trade.

The results indicate that investment stabilised in 2026 Q3. However, this aggregate performance reveals an uneven cross-sector performance: investment in industry increased but was more contained in the other sectors. Overall, the moderation of investment is consistent with the stability observed in capacity utilisation since nearly 90% of the firms surveyed reported that their current capacity is sufficient to meet demand, which suggests that there is no across-the-board pressure that prevents capacity utilisation from being increased in the short term.

Meanwhile, the firms’ perception about the impact of the conflict in Iran on investment improved in comparison with the previous quarter. The percentage of firms indicating that their investment decisions were impacted negatively by the heightened uncertainty stood at 40.9%. This was slightly lower than the figure of 43.2% recorded in 2026 Q2. In this setting, business expectations for 2026 Q4 point to the outlook for investment improving somewhat (Chart 1.c).

Overall, the survey results suggest that business activity grew moderately in Q3, reflecting a slight rise in turnover, subdued employment and investment, and that firms perceived a smaller economic impact from the conflict in Iran.

Medium-term outlook for activity

There are no significant changes to turnover expectations for one year ahead with respect to those reported by firms in preceding quarters. Around half of the firms expect turnover to increase, approximately one-third expect no change, and a smaller proportion anticipate a decline. By sector, transportation, administrative activities and non-market services have a more favourable outlook, while expectations are more muted for agriculture and wholesale and retail trade.

Most firms (65%) consider that the likelihood of their turnover expectations materialising is high; in other words, there is a low or normal degree of uncertainty over expected turnover. Moreover, this proportion of firms increased from 57% in Q2.

Costs and prices

The repercussions of the conflict in Iran continue to affect firms’ input costs and selling prices, chiefly through their impact on energy markets. Nevertheless, the survey results suggest that these pressures may have eased slightly in 2026 Q3, compared with the previous quarter.

Input costs continued rising at a robust pace, albeit somewhat more moderately than between April and June (Chart 2.a). This moderation appears to be relatively widespread across sectors. Looking ahead, firms continue to expect input costs to rise further over the next 12 months, at broadly the same pace as reported in the previous quarter.

These cost pressures have been partially passed through to selling prices, which also continued to rise in Q3, although again at a somewhat slower pace than in the second quarter. The largest increases were recorded in hospitality, wholesale and retail trade and transportation (Chart 2.b). Meanwhile, expectations for selling prices one year ahead remain virtually unchanged.

For the time being, however, the share of firms reporting higher input costs or selling prices remains below the levels observed in 2022 following the outbreak of the war in Ukraine, when energy prices also surged.

Factors limiting business activity

In Q3, energy input costs continued to be the main factor limiting business activity, with the share of firms reporting this constraint rising slightly to 63.2%, up by 1.4 percentage points (pp) on the previous quarter (Chart 2.c). Nonetheless, this share remains below the level recorded following the outbreak of the conflict in Ukraine, when it stood at close to 80%. Economic policy uncertainty also continued to be a significant constraint, although its impact declined by 4.4 pp to 57.6%. Meanwhile, the proportion of firms constrained by labour shortages remained largely unchanged at 43.1%.

Chart 1 Turnover, employment and business investment: change and outlook

SOURCE: EBAE.

1. Index constructed by assigning the following values to firms' qualitative responses: significant increase = 2, slight increase = 1, unchanged = 0, slight decrease = -1, significant decrease = -2.

Chart 2 Prices and constraints on economic activity

SOURCE: EBAE.

1. Index constructed by assigning the following values to firms' qualitative responses: significant increase = 2, slight increase = 1, unchanged = 0, slight decrease = -1, significant decrease = -2.

2. Firms reporting a negative or very negative impact of each of these factors on their activity.

Other constraints notably include financing difficulties, which increased, although their prevalence was still moderate. The percentage of firms citing access to finance as a constraint increased by 5.4 pp to 18.2%, with cross-sector differences and a slightly stronger increase among larger firms. Meanwhile, the share of firms affected by borrowing costs increased by 2.5 pp to 26.8%, with SMEs reporting a somewhat greater impact on their business activity.

Lastly, following the slight increase observed in the previous quarter, supplier delivery problems became a less significant factor limiting business activity, as the share of firms identifying it as a constraint fell by 2 pp to 13.6%. This development is consistent with firms’ perception, to date, of the conflict in Iran having a smaller impact on the supply of energy and non-energy inputs.

Box 2 Main assumptions underlying the projection exercise

This box describes the technical assumptions underlying the 2026 Q3 projection exercise. Compared with the June projection exercise, the upward revision to the Spanish economy’s export markets is notable. This is the result of the resilience of the European and global economies to the energy shock in the months following the outbreak of the war in the Middle East. The more positive outlook for the external markets is offset by the less favourable path for energy commodity prices than expected in the Q2 projection exercise. Financial conditions are also tighter in these projections than previously projected (Table 1).

Spanish export market growth for 2026 is revised up by 0.8 percentage points (pp), to 2.9%. This upward revision also applies to 2027, with export market growth accelerating to 3.3%, 0.6 pp higher than projected in June.

Meanwhile, despite the recent increase, oil prices have risen less in recent months than projected in June (Chart 1). Looking ahead, the markets are expecting this increase to continue up to the beginning of autumn, far exceeding the June projections. Oil prices will then gradually ease, to converge to levels similar to those projected in June by the end of the projection horizon.

Chart 1 Energy price assumptions

SOURCES: Reuters, OMIE and Banco de España.

Meanwhile, wholesale electricity prices have stood well above those projected in June, as a result of their sharp rise over the summer, linked to the increase in gas prices (Box 3). While the markets anticipate an adjustment in these prices from 2027, they are expected to remain at levels well above those projected in June.

In addition, financial markets are pricing in tighter financial conditions amid persistently high inflation rates, a considerable increase in long-term sovereign yields and expectations of future monetary policy tightening. In particular, the expected paths of short and long-term interest rates are higher than projected in June for both 2026 and 2027, entailing tighter financial conditions for households and firms.

Turning to the exchange rate, the euro is slightly weaker than in the June projection exercise, both with respect to the US dollar and in nominal effective terms.

As regards the fiscal assumptions, compared with the June projections, the measures incorporated into this projection exercise include the two extensions to September and December of the tax measures in response to the Iran crisis (Royal Decree-Law 18/2026 and Royal Decree-Law 25/2026), the dependency system reform that increases the amounts the central government transfers to the regional governments (Royal Decree-Law 17/2026), the urgent measures in response to the crisis in Ceuta and the wildfires across Spain (Royal Decree-Law 22/2026 and Royal Decree-Law 20/2026) and the projected effects of the regularisation of immigrants launched in May 2026, whose fiscal impact is subject to a high degree of uncertainty and is expected to materialise fully in 2027. Overall, these measures are estimated to drive up the general government deficit by around 0.3 pp of GDP in 2026 and 0.2 pp in 2027.

Box 3 The effect of rising gas prices on recent developments in wholesale electricity prices in Spain and its impact on inflation

The price of natural gas has risen sharply on European markets in 2026 owing to the conflict in the Middle East. The blockade of the Strait of Hormuz at end-February disrupted nearly a fifth of the global trade in liquefied natural gas, including exports from Qatar. On the Iberian gas market (MIBGAS), gas prices spiked when the conflict broke out, from €30 per megawatt-hour (€/MWh) in late February to above €50/MWh in early March. After easing following the temporary ceasefire in April, they rose again in the wake of the conflict’s resurgence over summer, reaching €78/MWh in September, more than double their February levels. Similarly, wholesale electricity prices in Spain have risen, although the pass-through of higher gas prices has varied over the course of the year (Chart 1). In spring, the impact was mitigated owing to significant renewable energy generation typically seen at that time of year and wholesale electricity prices remained moderate, with monthly averages ranging from €40/MWh to €55/MWh. In summer, by contrast, the pass-through was much more intense, and in September the price reached €143/MWh, its highest monthly level since February 2023.

Chart 1 Wholesale electricity prices in Spain and natural gas-fired generation cost (a)

Sources: ENTSO-E (daily market prices), MIBGAS (gas in Spain) and EEX (EU Emissions Trading System emission allowances auctions).

1. Monthly averages. Natural gas-fired generation cost = 2 × gas price (€/MWh) + 0.4 × emission allowance price (€/t), corresponding to the variable cost of an efficient combined-cycle plant.

This asymmetry in price movements reflects the design of the wholesale electricity market, in which the hourly price is determined by the last generating technology needed to come online to satisfy demand. When demand can be met entirely from wind, solar, hydraulic and nuclear sources (technologies with very low variable costs), the electricity price is low and barely determined by gas. When combined cycle plants are needed, the price tends to be set by their variable cost.⁸ To measure the extent to which this natural gas-fired generation cost is passed through to electricity prices, a monthly regression is calculated of the hourly electricity price on that cost. The coefficient of this regression, or pass-through coefficient, would equal 1 if the average electricity price fully mirrored the cost of generating electricity using natural gas, and would be 0 if it was entirely unaffected.

In Spain, the pass-through coefficient exhibits marked seasonality in both 2025 and 2026 (Chart 2.a). In spring, gas sets the electricity price during very few hours of the day, and the coefficient remains below 0.5. In summer, by contrast, combined-cycle plants are needed during a large share of the hours when solar generation is unavailable, namely at night and in the late afternoon, and the coefficient rises to near to 0.75. As a result, the impact of higher gas prices on electricity prices depends on the time of year at which the increase occurs. The rise in gas prices in March was barely passed through to electricity prices, which were in fact lower than a year earlier, amid weaker demand and higher solar photovoltaic generation than in 2025. By contrast, in July and August around three-quarters of the increase in gas-fired generation costs was passed through to electricity prices. For example, in August that cost was €63/MWh higher than a year earlier, while the electricity price increased by €49/MWh.

Electricity prices in Germany and Italy are more sensitive to gas prices than in Spain, although this sensitivity varies less throughout the year. France, where nuclear power accounts for a larger share of electricity generation, displays a pattern more similar to that observed in Spain (Charts 2.b, 2.c and 2.d). In Italy, the gas price sets the electricity price during most hours of the day and the coefficient stands at around, or even slightly above, 1, meaning that the increase in gas prices has been passed through almost entirely to electricity prices since March. In Germany, gas sets the electricity price during a significant share of hours in both spring and summer, and the coefficient remains high throughout the year: this year it stood at around 0.7 in spring and 0.8 in summer. In France, pass-through increased during the summer as nuclear generation was lower than a year earlier, and electricity prices almost doubled in July and August compared with 2025. As a result, in August and September wholesale electricity prices in Spain were at levels similar to those observed in France and Germany, having been roughly half those in Germany during the spring.

Overall, the share of renewables in Spain means that wholesale electricity prices are largely unaffected by gas price developments in the spring. However, this is not the case in the summer or, generally speaking, the autumn or winter. In these seasons, gas-fired combined-cycle power plants are still needed to meet demand in a considerable number of hours. According to the coefficients estimated, a €10/MWh increase in gas prices raises wholesale electricity prices by some €15/MWh in the summer – twice the spring increase. If gas prices remain at their high levels over the coming months, they can be expected to continue being largely passed through to electricity prices. This was the case, albeit with lower gas prices, between September 2025 and January 2026, when the coefficient ranged from 0.6 to 0.9. The September data point in this direction: with the tensions in the Strait of Hormuz unresolved, both gas and electricity prices stood above their current levels. At the cut-off date for the assumptions used in this report, futures markets were signalling that electricity (€141.4/MWh) and gas (€74.2/MWh) prices would remain high in 2026 Q4.

Chart 2 Pass-through of the gas-fired generation cost to wholesale electricity prices (a)

SOURCES: ENTSO-E (daily market prices), national gas hubs (Spain: MIBGAS-PVB; France: PEG; Germany: THE; Italy: PSV) and EEX (EU Emissions Trading System emission allowances auctions).

1. Coefficient of a regression through the origin of the hourly electricity price on the natural gas-fired generation cost, estimated for each month. A value of 1 denotes that the price replicates that cost. The whiskers represent the 95% confidence band. Natural gas-fired generation cost = 2 × gas price (€/MWh) + 0.4 × emission allowance price (€/t), corresponding to the variable cost of an efficient combined-cycle plant.

To assess the impact of these developments on inflation, the differences in the pass-through of changes in electricity prices on wholesale markets to retail markets must be considered. Compared with its European peers, Spain is characterised by the high frequency with which consumer prices are revised, resulting in greater and faster pass-through of changes in wholesale market prices to those paid by the end consumer.⁹ In particular, in 2025 around 27.5%¹⁰ of Spanish households opted for a regulated rate for small consumers, while such regulated dynamic pricing systems are generally not typical in other European countries.¹¹ Despite the reform adopted in 2024 to make the system for setting the regulated rate for small consumers less dependent on daily prices,¹² electricity inflation in Spain remains more volatile than the euro area average. In the recent period, electricity pricing in Spain has passed through higher gas prices to the end consumer more quickly. This contributes to Spain’s sizeable positive inflation differential in the electricity component compared with the euro area, on the latest data available (August 2026) (Chart 3). By country, the increase in this component in Spain is greater than in France – with a similar degree of pass-through of higher gas prices to wholesale electricity prices – and Germany (despite the greater impact of higher gas prices on the wholesale electricity market there). Among the major euro area countries, electricity inflation in Spain is only lower than in Italy,¹³ where wholesale prices have increased more. Against this background, Spain’s positive electricity inflation differential relative to the euro area as a whole explained 2.4 percentage points (pp) of the inflation differential in the overall energy component (2.8 pp) in August.

Chart 3 Electricity inflation rate

Source: Eurostat.

Box 4 Recent developments in the inflation differential between Spain and the euro area

Since mid-2025 consumer prices have increased at a persistently faster pace in Spain than in the broader euro area. Indeed, between July 2025 and September 2026 the inflation differential, that is, the difference between inflation rates in Spain and the euro area, averaged 0.9 percentage points (pp) for headline inflation and 0.8 pp for core inflation. Moreover, these differentials have widened markedly since the outbreak of the conflict in the Middle East, from 0.6 pp for both indicators in February to 1.2 pp for headline inflation and to 1 pp for core inflation in September (Chart 1).¹⁴ From a long-term perspective, headline and core inflation differentials are at their highest levels since August 2022 and September 2006, respectively (Chart 2).

Chart 1 Inflation differential between Spain and the euro area in 2026

Source: Banco de España.

Chart 2 Inflation differential between Spain and the euro area since 2000

SOURCE: Banco de España.

Against this background, this box documents the main components behind the widening of the inflation differential between Spain and the euro area in recent months. Persistently positive inflation differentials, particularly when they spread to services and other core inflation components, warrant close monitoring, as they could gradually erode the Spanish economy's competitiveness vis-à-vis its main trading partners. In a monetary union, any loss of competitiveness can only be corrected through a subsequently larger easing in domestic prices and costs.

Table 1 presents the contributions of various groups of products (food, energy goods, non-energy goods and services) to the inflation differential between Spain and the euro area in three representative months of 2026: February, prior to the energy crisis triggered by the attack on Iran; May, when tax relief measures had their strongest impact on energy prices in Spain;¹⁵ and September, the most recent month with data available.

Services were the main contributor to the inflation differential, with their contribution increasing from 0.3 pp in February to 0.6 pp in September, when they accounted for approximately half of the total differential. Overall, the services component has made the most sustained contribution to the inflation differential between Spain and the euro area, in keeping with the downward stickiness of services inflation in recent years.

Meanwhile, the contribution of the energy component has varied significantly over recent months. Prior to the outbreak of the war in the Middle East, energy inflation rates in Spain and the euro area were similar, meaning their contribution to the inflation differential in February was virtually zero. This contribution then turned negative in May as a result of the larger tax relief measures introduced in Spain to mitigate the impact of the conflict, which tempered the increase in energy prices. As these measures were unwound the contribution of the energy component increased and moved into positive territory in August and September (Table 1 and Chart 3).

Chart 3 Energy inflation

SOURCE: Banco de España.

The remaining product groups, namely food and non-energy industrial goods, have likewise contributed positively to the inflation differential in recent months. The contribution made by food rose markedly between May and September, driven by the acceleration in unprocessed food prices, while processed food inflation has been consistently higher in Spain than in the euro area. In the case of non-energy industrial goods, the differential narrowed in September, reducing its contribution to less than 0.1 pp. Most of the differential for this group is accounted for by developments in the highly volatile clothing and footwear component.

Box 5 The fiscal response to the energy shock triggered by the war in the Middle East: impact on inflation and distributional effects on households

The war in the Middle East has affected fossil fuel prices and the energy system, driving up energy costs significantly. These developments bear similarities to the tensions observed in energy markets following Russia’s invasion of Ukraine, which triggered an inflationary process in 2022-23. The pass-through of higher energy prices to headline inflation has important implications for macroeconomic stability, the well-being of households and the outlook for firms. These effects are particularly strong for vulnerable households and for the sectors most exposed to rising energy costs.

The experience from 2022-23 provides a useful framework for an initial analysis of the current fiscal response. Assessments of that episode show that the fiscal measures adopted considerably mitigated the loss of household purchasing power, although their distributional effects varied across countries and across households within each country.¹⁶ These papers show that the distributional impact of the fiscal response depends on how the measures are designed and how they interact with households’ consumption patterns. In light of these analyses, this box first describes the fiscal measures adopted in Spain in response to the current energy shock, their budgetary cost and their effect on inflation. It then looks at the distributional impact on households of some of these measures (cuts in taxes on fuel, gas and electricity).

These measures can be assessed based on the general recommendation of the European Commission, the European Central Bank (ECB) and the Organisation for Economic Co-operation and Development (OECD) that support measures should be targeted, temporary and appropriately calibrated. This requires balancing their objectives, namely protecting vulnerable or particularly affected groups and limiting price increases, against their drawbacks, including their budgetary cost and the distortion of price signals, which weakens incentives to reduce consumption of the goods that have become more expensive.

The fiscal response to the energy shock in the international context

Spain’s fiscal response to the current episode is part of a broader pattern of responses among advanced economies. According to the OECD, as at 9 April 2026, 26 out of its 38 member countries had implemented an initial response comprising at least one support measure to address the energy shock stemming from the conflict in the Middle East. The most common interventions were reductions in motor fuel taxes, as well as cuts to VAT and excise duties.¹⁷

Within Europe, the response appears to have relied, as in the 2022-23 episode, largely on measures that were not targeted at specific groups, mainly broad-based reductions in energy-related taxes. The European Commission estimated in May 2026 that around three-quarters of the budgetary cost incurred in the European Union as a whole had been implemented through untargeted measures.¹⁸ On data up to end-May 2026, the ECB estimated that untargeted measures accounted for around 60% of the gross fiscal cost incurred, with two-thirds of the support directed at households and one-third at firms.¹⁹ Based on these data, the aggregate size of the initial fiscal response adopted in the euro area between the onset of the conflict and May is estimated at around 0.1% of GDP.

Compared with other countries, Spain stands out for the scale of its initial fiscal response. Estimates by the European Commission and the OECD put the fiscal package implemented by May at 0.25% and 0.3% of GDP, respectively.²⁰ Subsequently, both Spain and other European economies approved extensions or introduced new packages comprising both tax reductions and support for affected industrial sectors. On the information available to end-September, Spain had allocated a cumulative 0.52% of GDP to the measures adopted, according to Banco de España estimates. The total amount is equivalent to around one-fifth of the general government deficit projected by the Banco de España for 2026, which would reach 2.6% of GDP.

The fiscal measures adopted in Spain

Spain’s fiscal response to the energy shock was structured around three packages of measures: Royal Decree-Law 7/2026 of 20 March 2026, Royal Decree-Law 18/2026 of 29 June 2026 and Royal Decree-Law 25/2026 of 29 September 2026, all adopted under the Comprehensive Response Plan to the Crisis in the Middle East. Table 1 shows the measures adopted, their duration and their budgetary impact. A first set of measures consisted of broad-based reductions in taxes on energy – including VAT on motor fuels, electricity, gas and firewood and excise duties on hydrocarbons and electricity – and in the tax base for the electricity generation tax. A second set of measures comprised subsidies and direct grants for the sectors most intensive in energy use: tax reductions for fuel for professional and agricultural uses and support for energy-intensive industries, the primary sector and the transport sector.

These packages bear strong similarities to the measures adopted during the inflationary crisis of 2022-23. They consist primarily of broad-based interventions aimed at containing price increases, together with subsidies for the industries most affected by the shock. The most innovative feature of the measures adopted in the current episode is the design of its price-containment measures. They have been designed as temporary interventions with tax reductions scheduled to be phased out over time, but subject to safeguard clauses that are activated if price increases over the preceding months exceed certain thresholds. However, since the energy-related tax measures remain broad-based in nature, their distributional effects on households can be expected to be comparable to those observed in the previous episode.

The cuts in energy taxes appear to have significantly dampened the surge in prices. According to the National Statistics Institute, energy inflation stood at 17.1% year-on-year in August, compared with 21.6% had tax rates remained unchanged. In the euro area, where measures were smaller in budgetary terms, the effect appears to have been much more limited, according to Eurostat (14.3%, compared with 15.1%). As a result, the tax cuts narrowed Spain’s energy inflation differential vis-à-vis the euro area from 6.5 pp to 2.8 pp.

According to the Banco de España’s estimates, the extension and increase of the reduction in excise duties on hydrocarbons approved under Royal Decree-Law 25/2026 will also lower average inflation in 2026 by 0.14 pp. This effect would stem mainly from a 1.6 pp reduction in average energy inflation, given that second-round effects of the energy shock on core inflation have so far remained limited. However, the temporary nature of these measures means that some of these outcomes will be reversed once they are withdrawn. Lastly, since the safeguard clauses link the duration of the tax cuts to developments in energy prices, both their budgetary cost and their impact on inflation in 2026 will depend on September and October consumer price index (CPI) data.

The measures adopted are relevant to household well-being, albeit through different channels. The reductions in energy taxes (amounting to around 0.34% of GDP and accounting for roughly 65% of the total cost of the measures) have a more direct and immediate effect on the prices of the goods consumed by households. The impact of these measures can therefore be allocated to individual households on the basis of their observed consumption basket, assuming full pass-through.²¹ The subsidies and direct support granted to the most energy-intensive sectors (amounting to around 0.18% of GDP) affect households indirectly. These indirect effects are mainly transmitted through the end prices of the goods and services produced by the beneficiary sectors, as well as through the income and employment generated by those sectors. The impact on households is therefore more uncertain and its calculation would depend on assumptions regarding the extent and speed of the pass-through. As such, a distributional assessment of these measures falls outside the scope of this exercise.

The distributional analysis presented below is limited to measures that have a direct impact on the prices of the energy products consumed by households. Specifically, these comprise reductions in VAT and excise duties on electricity, gas and motor fuels. The direct savings generated by these measures for households as a whole are estimated at around €3,675 million (approximately 0.21% of GDP). This amount accounts for slightly less than two-thirds of the total cost of the tax reductions adopted, which also extend to firms and the general government.

The distributional impact of the tax reductions on households

The distributional analysis of the tax measures affecting households follows the methodological approach set out in García-Miralles (2023).²² This approach uses household spending on the affected goods as recorded in the 2024 Household Budget Survey, updated to reflect recent price developments. It documents household consumption patterns and estimates the distributional impact of the tax reductions.²³ It should be noted that these estimates are based on household consumption patterns observed in 2024 and therefore do not capture any changes in consumption behaviour that may have occurred since 2025 or in response to the current energy shock. In addition, the estimates are based on a 2026 price scenario that is subject to uncertainty and should therefore be interpreted as indicative orders of magnitude.

The distributional impact of the measures is assessed using two complementary indicators: (i) average tax savings per household (in euro); and (ii) tax savings as a share of total household spending (as a percentage of spending). These indicators are estimated for each decile of equivalised household expenditure.²⁴

The average savings per household resulting from the tax reductions on electricity, gas and motor fuels are estimated to increase across the expenditure distribution, from around €105 in the lowest decile to €264 in the highest (Chart 1.a). This aggregate result masks substantial differences across products. The savings associated with the electricity tax reductions are relatively similar across expenditure groups (between €46 and €69), whereas those related to motor fuels increase markedly along the distribution (between €56 and €188). The impact of the fuel measure reflects the fact that motor fuel consumption is more heavily concentrated among higher-spending households.

In terms of the tax savings relative to household expenditure, however, the tax reductions display an overall progressive distributional profile. The savings generated by the measures decline from around 0.61% of expenditure in the lowest decile to 0.37% in the highest (Chart 1.b). This pattern is driven primarily by the electricity tax reduction, as electricity accounts for a relatively larger share of the consumption basket of vulnerable households at the lower end of the distribution. The savings associated with this component fall from 0.3% of expenditure in the first decile to 0.1% in the last, whereas the reduction in taxation on motor fuels exhibits an almost flat profile.

These findings highlight that broad-based measures aimed at containing price increases can have markedly different distributional effects. It is also worth noting that the reduction in motor fuel taxes (which yields greater savings in euro terms for households with higher fuel expenditures, although representing a similar share of household spending across the distribution) affects a good for which lower consumption is considered desirable for both geopolitical and environmental reasons, amid a contraction in supply.²⁵ Moreover, in the case of diesel, the safeguard measure introduced in September increased its tax advantage over petrol from 9.4 to 24.4 cents per litre, running counter to the more structural objective of bringing diesel taxation into line with petrol taxation, as set out in the Recovery, Transformation and Resilience Plan. In contrast, the cut in taxes on electricity is more closely aligned with these objectives, as it combines support for vulnerable households with a system of price signals that favours more resilient and sustainable energy sources.

Chart 1 Impact of the energy tax cuts on households, by expenditure group (a)

SOURCE: Banco de España, drawing on Household Budget Survey data.

1. Considering Royal Decree-Law 7/2026, Royal Decree-Law 18/2026 and Royal Decree-Law 25/2026. The motor fuel tax cut comprises the reductions in VAT and the hydrocarbon excise duty. The gas tax cut comprises the reduction in VAT. The electricity tax cut comprises the reductions in VAT, the excise duty on electricity and the electricity generation tax base. See Table 1 for more details of the duration of these reductions and the applicable tax rates.

Box 6 Alternative scenarios for the Spanish economy depending on how geopolitical tensions unfold

The persistence of the Iran conflict and there being no stable resolution in sight continue to generate a high degree of uncertainty regarding international geopolitical and economic developments. This uncertainty has triggered elevated energy market volatility, leading to higher oil and gas spot prices and a rise in their prices on futures markets. If these tensions continue or escalate further, they could have a more severe impact on the global energy supply, by disrupting the main shipping routes and global supply chains, and drive up energy prices as a result. Higher energy prices would give rise to persistent adverse effects on inflation and economic activity worldwide. These risks are particularly relevant for an open economy such as Spain’s, which is exposed to external shocks through the energy, trade and financial channels.

Against this backdrop, a single baseline macroeconomic projection does not adequately capture the conflict’s range of possible outcomes. It is therefore advisable to consider different geopolitical scenarios: a diplomatic resolution, intermediate cases (such as a protracted conflict and a partial resumption of energy flows) and an escalation of the war.

This box presents the effects of different geopolitical scenarios on economic activity and inflation in Spain. To do so, it uses the methodology in Alonso-Alvarez, Kataryniuk, López-Salido and Pérez (2026) ²⁶ to translate the corresponding geopolitical narratives into assumptions about the duration of the disruptions, supply and energy prices. These assumptions generate different energy price paths to those priced in by the futures markets at the cut-off date for the assumptions used in the projections. The alternative paths determine, in turn, international economic developments and affect the outlook for the Spanish economy.

Three alternatives to the baseline scenario of these macroeconomic projections are considered. The first envisages a diplomatic resolution to the conflict and energy flows gradually returning to normal. In the second scenario heightened geopolitical tensions prompt greater disruptions to the global energy supply and increases in oil and natural gas transportation costs. The third is a “combined” scenario, which incorporates the average path for energy prices under the different geopolitical scenarios, weighted by the probability of each scenario occurring. Chart 1 depicts the different oil price paths under each scenario.

Chart 1 Oil prices under the different scenarios

SOURCES: LSEG and Banco de España.

Table 1 reflects the estimated impact of the three alternative scenarios on GDP growth and inflation in Spain. Compared with the baseline, the combined scenario reduces GDP growth for 2027 by 0.2 percentage points (pp) and raises the inflation rate by 0.3 pp. The most severe scenario reduces GDP growth for 2027 by 0.6 pp and raises inflation by close to 1 pp, while the most benign scenario raises GDP growth by 0.4 pp and reduces inflation by 0.5 pp.