Bank of Spain sees steady quarterly growth, keeps 2026 forecast

MADRID, June 18 (Reuters) - Spain's economy likely expanded by 0.5%-0.6% in the second quarter from the preceding three months, when it grew at a similar pace of 0.6% to outperform other large euro zone economies, the Bank of Spain said on Thursday.

The central bank kept its baseline outlook for full-year growth in 2026 at 2.3% - a slowdown from last year's expansion of 2.8% - and also maintained its forecast for 2027 at 1.7%.

Spain, one of the world's most visited countries, has been outperforming other European economies, helped by booming tourism, domestic consumption and immigration. The European Central Bank expects GDP in the euro zone to expand by 0.8% in 2026 and by 1.2% in 2027.

Still, the Bank of Spain pointed to a loss of momentum in domestic demand contributing to the slowdown so far this year, while the external sector's positive contribution to GDP growth resulted from imports contracting more sharply than exports.

Following a rise in energy prices due to the war in the Middle East, it also upped its inflation forecast to 3.6% in 2026 from 3%, and to 2.6% in 2027 from 2.5%, pointing to still substantial risks to the macroeconomic outlook stemming from the conflict if it were to continue.

The cut-off date for the projections was May 27, before the preliminary peace deal reached between the United States and Iran.

The central bank also raised the 2026 budget deficit forecast to 2.4% from 2.3% projected earlier, still narrower than last year's 2.5%. Next year, the gap is seen at 2.3%.

Meanwhile, the debt-to-GDP ratio is expected to end this year at 98.9% and then shrink to 97.9% by end-2027.

(Reporting by Jesús Aguado, editing by Andrei Khalip)