The Balearic economy grew by 2.7% in the first quarter, a slowdown of two tenths of a percentage point compared with the fourth quarter of the previous year (2.9%), continuing the slowdown already observed throughout 2025, whilst managing to weather the problems arising from the geopolitical conflicts that marked the start of this year, according to data from the Balearic business association CAEB’s Economic Trends report. As a result, the Balearic economy matched Spain’s average growth rate (2.7 per cent), which also managed to hold
steady, and was well above that of the European Union, whose growth halved (0.7 per cent) compared with the end of 2025 (1.4 per cent). The major economic powers are struggling to emerge from their slump. France (0.9% vs 1.1% in Q4 25), Germany (0.3% vs 0.4%) and Italy (0.8% vs 0.9%). In contrast, the US economy accelerated its growth rate to 2.6% (2% in Q4 25). Across the islands, the region’s 2.7% growth was evenly distributed amongst them, with Mallorca leading the way (2.8%
vs 2.9% in Q4), closely followed by Ibiza and Formentera, which lost momentum (2.7% vs 3% in Q4), whilst Menorca stabilised at 2.7% growth, identical to that of the final quarter of 2025. Employment, meanwhile, saw an improvement in Social Security enrolment figures during the first three months of the year (3.4%), remaining above the national average (2.7%) and breaking the record for the number of registered workers for this period of the year, which, for the second consecutive quarter, has exceeded the half-million mark.
Unemployment fell to 5% of the labour force, having dropped by three tenths of a percentage point compared with the previous quarter (5.3%, Q4), less than half the national rate (10.1% vs 10%, Q4). Inflation had a serious impact on wage incomes following renewed tensions in the energy markets. In March, one month into the war in the Middle East, prices soared by 3.6 per cent, a rate that added more than one percentage point to those recorded in January (2.4 per cent) and February
(2.2 per cent). Although a large part of this trend stems from volatile components, particularly fuels (7.8%), it is worth noting the spillover into core inflation, such as services (3.9% vs 3.1%, February), notably the hotel and catering sector (7% vs 6.2%, February). Despite the subsequent decline in April (3.1%), inflation in the Balearics rose to 3.4% in May. From a supply-side perspective, the first quarter saw growth in the construction sector, which maintained the upward momentum seen at the end of 2025 (4.5% vs
4.2% in Q4 25) in terms of both approved and completed projects, whilst the rest of the sectors continued to lose momentum, such as services at 2.7% (2.9% in Q4) and industry (1% vs 1.4% in Q4). On the demand side, investment consolidated its role as the driving force behind domestic demand, rising by 4.3% – an increase of two tenths of a percentage point on the rate recorded at the end of the previous financial year (4.1%) – a rise underpinned by investment in
construction. It has now seen three consecutive quarters of acceleration. At the same time, private consumption grew at a rate of 2.8% during the first quarter of 2026, a rate at which it saw its year-on-year growth slow for the fifth consecutive time (3%, Q4 25). Households’ caution in purchasing decisions comes against a backdrop of record-high employment levels, although purchasing power has been eroded by the gradual rise in the cost of the shopping basket. At the same time, the start of 2026, marked
by the outbreak of war in the Middle East, bore a strong resemblance to the start of 2022, with the Russian invasion of Ukraine. Energy once again took centre stage, causing tensions in the commodities markets, inflation and financial conditions. However, recent international analyses suggest that the shock may be more manageable and the consequences more limited than on the previous occasion, provided that the current conflict does not become entrenched, as the US-Iran agreement of 17 June appears to indicate.
Balearic economy, CAEB Economic Trends, Spain growth, inflation May, Social Security enrolment, unemployment 5%, construction growth, investment 4.3%, hotel catering inflation 7%