Publications

At its June meeting, the Central Bank’s Board decided to keep the policy rate unchanged at 4.50%. The monetary policy stance, measured by the ex-ante real reference rate, remains around neutral.

The sensitivity remains on growth and employment outlook, potentially generating a policy mix where monetary stance staying relatively tighter compared to our early March baseline scenario and fiscal policy not being able to be tightened as targeted in the Medium Term Program (MTP).

This paper delivers the first comprehensive estimate of the dynamic fiscal multiplier of defence spending for the EU-27 by exploiting exogenous accrual-based government defence outlays and a combination of linear and non-linear Local Projection methods.

May’s inflation was 1.5% m/m (43.5% y/y), well below expectations (CB-consensus: 2.1% m/m, BBVAe: 1.9% m/m). Core inflation fell to 2.2% m/m in May.

Domestic demand remains strong, despite some recent signs of moderation. However, the lagged effects of sharp monetary tightening—now mostly over—along with less expansionary fiscal policy and a less supportive global backdrop are expected to pave the way for a deceleration of both GDP growth and inflation.

GDP is projected to grow by around 2.5% in 2025 and 1.7% in 2026, maintaining a pace close to the medium-term trend despite a slowdown. This deceleration will be largely driven by shifts in U.S. trade policy and the heightened uncertainty they have triggered.

The impact of tariffs is computed through the calculation of effective tariffs under different scenarios and simulations based on distinct methodologies. If the current tariffs remain broadly unchanged, global growth could initially fall between 0.2pp and 0.5pp, and potentially more over the medium term.

Economic activity is deteriorating due to heightened uncertainty; tariffs are affecting an economy already weakened by judicial reform and fiscal consolidation. We forecast GDP to contract by (-)0.4% in 2025, with a recovery expected in 2026 (1.2%).