Spain Will Keep Outperforming Euro-Area Peers, Deutsche Bank Says

Deutsche Bank projects Spain's economy will continue to outperform the euro area, forecasting 2.2% growth this year and 2% in 2026. This sustained outperformance is driven by easing inflation and lower borrowing costs, which are bolstering solid internal demand.

Analysis

Deutsche Bank AG projects that the Spanish economy will continue to outperform its euro-area peers, forecasting robust GDP growth of 2.2% for the current year and 2.0% for 2026. This positive outlook, articulated by Rosa Duce, Chief Investment Officer of the bank's Spanish unit, is predicated on the strength of "solid" internal demand. The primary drivers identified for this domestic resilience are the easing of inflation and a concurrent reduction in borrowing costs. This combination is expected to bolster consumer spending and business investment, creating a favorable economic environment that distinguishes Spain from the broader region's more sluggish growth profile.

Key Decisions for Investors

• Investors should consider increasing exposure to Spanish assets, as the country's projected economic outperformance offers a compelling case for overweighting Spanish equities and sovereign bonds relative to other euro-area markets.
• The forecast supports prioritizing investments in Spanish domestic-facing sectors, such as banking, consumer discretionary, and construction, which are best positioned to benefit from strong internal demand fueled by lower inflation and debt costs.
• The significant divergence in growth forecasts suggests evaluating relative value trades, potentially pairing a long position in Spanish indices against a short position in a broader euro-area benchmark to capitalize on the expected outperformance.