LIVE MARKETS-Spain shines as Citi lifts euro zone GDP growth forecast

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SPAIN SHINES AS CITI LIFTS EURO ZONE GDP GROWTH FORECAST

Spain's economy is showing surprise resilience, according to Citi economists who pin the country's GDP performance on a broader European trend of strong domestic demand.

In fact, euro zone GDP has beaten Citi's original 2025 forecast by about 0.3%.

Both business investment and exports are faring better despite U.S. tariffs being lifted more than the team had anticipated. Zooming in, country-specific performance varies.

"Country-wise, GDP has been much stronger in Spain (+0.4pp) and Ireland (on tariff front-loading or/and AI-related investment)," the economists say in a note.

Meanwhile, Italy underperformed by 0.3% while the region's biggest market, Germany, underperformed by 0.2%, despite March's fiscal rules overhaul.

French growth is looking soft, but broadly as expected at 0.8%, despite political ructions.

Citi are revising up their euro zone 2026 GDP growth forecast from 0.8% to 1.2%, but they leave 2027 at around 1.5%. That is when they expect to see the biggest pass-through of German fiscal stimulus.

In terms of potential external shocks that could alter Citi's sunny outlook, there are three.

Firstly is a potential delayed impact of U.S. tariffs, a risk that could be compounded by China's trade diversion into Europe - their second shock scenario.

Finally they flag a possible end to the Ukraine war as a potential upside risk. But that is provided that "the end of military hostilities does not leave a more unstable situation in Ukraine,".

Even lower energy prices could also ensue in such a scenario, they say.

(Lucy Raitano)

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