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Speaking to the Congress of Deputies regarding EU plans to increase defence spending, Prime Minister Pedro Sanchez has said that "We are going to make this effort in security and defence without touching a cent of social spending." Sanchez says that his gov't "will start a plan to develop defence by the summer". 

• The PM cannot get agreement within his minority coalition on boosting defence spending. Moreover, the gov't has yet to present a 2025 budget due to a lack of clear support. Without the step of presenting a budget, there are significant limits to what can be done to boost defence spending.
• Sanchez says that at the EU level he "will fight" for the planned E150bln in loans under ReArm Europe to be altered to become grants. MNI's Policy team has previously highlighted the EU fractures on how to fund major defence spending increases (see 'MNI: EU Split As Some Push To Keep Joint Borrowing Option Open', 20 March).
• As has been increasingly noted, as US pressure on European NATO countries to boost defence spending rises, Spain is the biggest laggard of all 32 NATO members. In 2024 it spent just 1.28% of GDP on defence (see chart below). 

Chart .1 Defence expenditure as a share of GDP (%)

Source: NATO

The National Institute for Economic Research (“KI”) has revised its 2025 calendar-adjusted Swedish GDP forecast up to 1.9% from 1.4% in the December projection round. Meanwhile, 2026 growth is seen at 2.7% (vs 2.9% in December). The Riksbank projected 2025 growth at 2.1% and 2026 growth at 2.2% in the March MPR. The press release notes that high uncertainty is holding back domestic consumption and investment. 

• From the report: “The unexpectedly high CPIF inflation means that the Riksbank is not expected to lower the policy rate further, unlike the December forecast which assumed a further cut to 1.50 per cent”
• From the press release: “The forecast is based on the assumption that the tariffs already imposed by the US will remain in place, and that there will be an average 10 percent increase in tariffs on all other imported products”.
• “Overall, the consequences of the tariffs themselves are expected to be limited both on inflation and growth in Sweden and the EU, while the effects for the US are expected to be greater. The defense investments announced in many European countries are also not expected to have a significant impact on economic development this year or next year, partly because they take time to implement and partly because of a high import content”.