The Bank of Spain has lifted its economic forecast, placing the country among the euro area’s strongest performers, even as rising food and housing costs continue to strain family budgets.

Spain is ending the year with an economic contradiction that is increasingly hard to ignore. Official figures show a country outperforming much of the euro area, supported by a dynamic services sector and steady population growth. Yet for many households, daily life tells a different story, marked by tight budgets and rising essential costs.

The Bank of Spain recently raised its forecast for economic growth in 2025, upgrading its outlook from an earlier estimate to an expected expansion of 2.9%. In a euro area struggling with uneven momentum, the revision highlights Spain as one of the bloc’s more resilient economies.

Several factors explain this stronger performance. Tourism has continued to recover well beyond the immediate post-pandemic rebound, bringing sustained revenue to coastal regions and major cities. Domestic demand has remained solid, underpinned by employment growth and relatively stable consumer confidence. Immigration has also played a key role, expanding the workforce and supporting overall economic activity.

Busy airports, high hotel occupancy rates, and full restaurant terraces have become familiar sights once again. These trends have translated into job creation across hospitality, transport, retail, and construction, helping Spain absorb new workers and limit labor shortages seen elsewhere in Europe.

Inflation, which surged sharply in recent years, is also expected to continue easing. The Bank of Spain projects that price growth will gradually slow, with inflation settling at around 1.9% by 2027. Lower energy costs and more stable supply chains are expected to contribute to this moderation.

Despite these encouraging signals, many Spaniards say their personal finances have not improved. While prices are no longer rising as fast as before, they remain significantly higher than just a few years ago. Food costs, in particular, continue to weigh heavily on household budgets, especially for families with children or fixed incomes.

Housing has become the most acute pressure point. In major cities and tourist destinations, rents have climbed steadily due to limited supply and strong demand. For many workers, wage increases have failed to keep pace with higher housing costs, forcing them to spend a growing share of their income on rent.

As a result, real wages — adjusted for inflation — remain under strain. Even those with stable employment often find little room for savings. Everyday decisions increasingly involve trade-offs, such as cutting back on leisure, postponing purchases, or delaying major life plans.

This disconnect between strong macroeconomic performance and household financial stress poses a challenge for policymakers. Consumer spending has helped support growth, but sustained pressure on living standards could eventually dampen demand.

The central bank has warned that structural issues must be addressed to ensure growth translates into broader prosperity. Productivity growth remains weak, limiting long-term wage gains. Housing shortages, particularly in urban areas, continue to drive up costs, while efforts to expand affordable housing take time to deliver results.

External risks also remain. A slowdown among key European trading partners, renewed volatility in energy markets, or tighter financial conditions could weigh on Spain’s outlook. Even so, the country currently stands out as a relative bright spot in an otherwise subdued regional economy.

As the year draws to a close, Spain’s economic story is one of contrast. Growth is strong, inflation is easing, and employment remains robust. Yet for many households, the sense of recovery remains elusive, overshadowed by the persistent rise in everyday expenses.

Whether the optimism reflected in official forecasts can translate into tangible improvements in living standards will be one of the central questions for the year ahead.