MADRID, March 27 (Reuters) - Spain's economy likely expanded by 0.5%-0.6% in the first quarter, the Bank of Spain said on Friday, outpacing other large euro zone economies but representing a slowdown on the 0.8% recorded in the fourth quarter.
The central bank raised its baseline outlook for full-year growth in 2026 to 2.3% from a previous estimate of 2.2%, taking into account the impact from the war in Iran. Spain's economy grew by 2.8% in 2025.
The bank's forecast took into account more unfavourable
technical assumptions regarding energy prices and developments in external markets, which it expects to be partially offset by fiscal support measures adopted to mitigate the effects of the Middle East crisis.
Without the impact from the war in the Iran the GDP forecast would have been raised to 2.4%, the bank said.
The bank expects GDP to grow 1.7% in its baseline scenario compared to 2% without the impact from war in the Middle East, down from previous forecast in December of 1.9%.
The central bank expects inflation to accelerate by 3% in 2026 in its baseline scenario, up from a previously expected 2.1%, and to 2.5% in 2027 from 1.9%.
It forecast a budget deficit of 2.3% in 2026 and 2027 compared to 2.5% in 2025.
Meanwhile, the debt-to-GDP ratio is expected to end this year at 99.2% and then shrink to 98.1% by end-2027.
(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Charlie Devereux)
