Big-Picture Snapshot

December 2025’s retail sales contraction of -0.80% (vs. November’s 1.00%) marks the sharpest monthly decline since early 2023, according to the Sigmanomics database[1]. The reading not only missed the consensus estimate (0.80%) but also stands in stark contrast to the 12-month average of 0.20%. This abrupt reversal follows a period of moderate growth, with October and September 2025 both posting flat or slightly positive prints.

Drivers this month

• Non-food retail categories saw the largest pullback, with discretionary spending lagging amid persistent inflationary pressures.
• Holiday season effects were weaker than typical, suggesting consumers prioritized essential goods over big-ticket items.
• Rising borrowing costs and softening labor market sentiment weighed on household confidence.

Policy pulse

The December print places Spain’s retail activity below its pre-pandemic trend and well under the ECB’s desired trajectory for domestic demand. With inflation still above target and the ECB maintaining a cautious stance, this data point may prompt policymakers to reconsider the pace of monetary tightening or signal a pause in rate hikes.

Market lens

Immediate reaction: EUR/USD dipped 0.20% and IBEX 35 futures fell 0.50% in the first hour post-release. The negative surprise reinforced concerns about Eurozone growth, pressuring Spanish equities and the euro. Bond yields edged lower as investors priced in a higher probability of ECB dovishness.

Foundational Indicators

Spain’s retail sales trajectory has been volatile in recent months. After a flat reading in October 2025 (0.00%) and a modest uptick in November (1.00%), December’s -0.80% drop is a clear outlier. For historical context, the 12-month average stands at 0.20%, with only two negative prints in the past year. Year-over-year, December 2025’s level is down 1.10% from December 2024, underscoring a loss of momentum.

Drivers this month

• Energy prices stabilized, but food inflation remained elevated, squeezing real disposable incomes.
• Consumer credit growth slowed, reflecting tighter financial conditions.
• Tourism-related retail activity failed to offset domestic weakness.

Policy pulse

Spain’s government has maintained targeted fiscal support, but budget constraints limit further stimulus. The ECB’s restrictive policy stance is filtering through to the real economy, with retail sales acting as a leading indicator of broader consumption trends.

Market lens

Spanish 2-year yields fell 6bps post-release, reflecting expectations of a more accommodative ECB. The EUR weakened against major peers, while Spanish bank stocks underperformed the broader market.

Chart Dynamics

Drivers this month

• Weak holiday retail performance, especially in electronics and apparel.
• Higher mortgage and consumer loan rates dampened discretionary spending.
• Unseasonably mild winter reduced demand for seasonal goods.

Policy pulse

With retail sales now below trend, pressure is mounting on the ECB to reassess its tightening bias. Spanish policymakers may advocate for targeted support to vulnerable households if weakness persists.

Market lens

Immediate reaction: IBEX 35 dropped 0.50%, led by consumer and banking stocks. EUR/USD slipped below 1.08, while Spanish government bonds rallied modestly.

Forward Outlook

The sharp December decline raises the risk of a sluggish start to 2026 for Spanish consumption. While some rebound is possible as base effects fade, persistent inflation, tighter credit, and global uncertainty remain headwinds. The probability-weighted scenarios are:

• Bullish (25%): Retail sales rebound in Q1 2026 as inflation moderates and consumer sentiment recovers, aided by wage growth and fiscal support.
• Base (55%): Retail sales remain flat to mildly positive, with ongoing volatility as households adjust to higher rates and uncertain job prospects.
• Bearish (20%): Further declines as external shocks (e.g., energy prices, geopolitical risks) and tighter financial conditions suppress demand.

Drivers this month

• Labor market resilience will be key to any recovery in retail sales.
• ECB policy signals and euro volatility may influence consumer confidence.
• Fiscal space is limited, but targeted measures could cushion the downside.

Policy pulse

With retail sales underperforming, the ECB may signal a pause or slower pace of rate hikes. Spanish authorities could consider temporary VAT cuts or direct transfers if weakness persists.

Market lens

Immediate reaction: Spanish CDS spreads narrowed slightly, reflecting expectations of policy support. Equity and FX volatility may rise if retail sales fail to recover in Q1.

Closing Thoughts

Spain’s December 2025 retail sales contraction is a clear warning sign for policymakers and investors. The abrupt reversal from November’s growth underscores the fragility of consumer demand amid persistent macro headwinds. While a rebound is possible, risks are tilted to the downside, and the data will likely influence ECB and Spanish fiscal policy in the months ahead. Close monitoring of labor market trends, inflation, and external shocks will be critical for anticipating the trajectory of Spanish consumption and its impact on broader Eurozone growth.