Fast, limited in time but somewhat excessive in its scope. “We would have liked it to be more focused where the incidence of the ‘shock’ is more important”. That is the assessment of José David López Salido, deputy director of Economics at the Bank of Spain, regarding ethe government's response plan to the consequences of the Iran war.
The supervisor presented this Friday its new macroeconomic projections for the Spanish economy, with a clear impact from the conflict in the Middle East and its derivatives.
Spain will grow by 2.3% in 2026
The estimate of the Bank of Spain is that the war will eat up four tenths of the expected growth but that the approved measures will be able to contain 75% of the impact, containing the loss to a single tenth.
Before the war broke out, the good data observed in affiliation to Social Security and private consumption pushed the GDP forecast up to 2.4%, which now would remain at 2.3%.
All of this based on a central scenario subject to a high volatility and uncertainty. The supervisor prepares its forecasts looking at energy futures. And any indicator depends on the duration of the open conflict in Iran and what intensity it reaches.
A plan not sufficiently redistributive
In its assessment of DL 7/2026, which contains the bulk of the measures deployed to contain the ‘shock’, the Bank of Spain values a “sufficiently rapid” decision to contain energy prices and prevent contagion to the rest of the shopping basket and also its limited nature in time.
The majority of tax cuts, points out the supervisor, have a validity of just over three months, conditioned furthermore on a persistence of inflation. He also believes the approach is correct: “We think it cushions the effect of the ‘shock’ on GDP and inflation, the measures will eliminate part of the effect on employment, production and prices”, assesses López Salido.
However, he believes it errs on the side of being not very redistributive. “It suffers from not being very well focused and from a certain redistributive deficit. We would have liked more focus,” assures the Bank executive, who believes that they should have concentrated more fiscal efforts on the most vulnerable families.
The battery of tax reductions applied to energy bills –VAT reductions from 21% to 10% on gas, electricity and fuels, as well as other taxes—are applied to all households and businesses, regardless of income. And, in the case of measures on fuels, benefit those who have a private vehicle and use it more.
A 'shock' historic and very volatile
In its analysis of the impact of the war, the Bank of Spain points to this war as one of the most intense shocks historically on energy prices, with a 40% increase in oil prices in just 15 days. In the case of gas prices, although not as high as after the Russian invasion of Ukraine, the price increase amounts to 60%.
“They are infrequent events, of great magnitude and subject to great volatility,” stresses the director of Economy, who also points to the impact it has on supply chains and the foreseeable increase in the price of intermediate goods and commercial and financial dynamics worldwide, with 20% of production affected by a blockade in the Strait of Hormuz.
Up to a point of GDP in the worst-case scenario
A worsening or prolongation of the conflict would negatively impact the prospects of the Spanish economy, which in a central scenario would already be affected by one tenth.
However, an adverse scenario would eat up three tenths more and a severe one could cut up to one GDP point. To outline its projections, the supervisor looks at energy markets, stabilizing the oil prices around 100 dollars a barrel in an adverse scenario, and at 120 dollars in a severe scenario.