The Balearic Islands are slowing down, but are showing remarkable resilience in a context of significant global tension. This is the conclusion reached by the Confederation of Business Associations of the Balearic Islands (CAEB) in the presentation on Friday of the Economic Trends report for the first quarter of 2026, which places the growth of the Balearic economy at 2.7% between January and March. Although the growth rate slowed by two-tenths of a percentage point compared to the last quarter of 2025 (2.9%), the archipelago continues to perform well in an international context marked by geopolitical uncertainty and tensions stemming from the conflict in the Middle East. The observed slowdown confirms the trend that began last year, but without compromising the resilience of the Balearic economy.
The Balearic Islands thus matched the growth rate of Spain as a whole (2.7 percent) and, once again, were well above the European Union average, where growth fell to 0.7 percent – half the rate recorded at the end of 2025 (1.4 percent). The main European economies continue to show very modest growth: France grew by 0.9 percent, Germany by 0.3 percent, and Italy by 0.8 percent. In contrast, the United States saw its growth accelerate to 2.6 percent.
The trend was very consistent throughout the archipelago. Mallorca led the growth with 2.8 percent, just one tenth of a percentage point below that at the end of 2025. Ibiza and Formentera saw their growth rate fall to 2.7 percent, after closing the previous fiscal year at 3 percent, while Menorca maintained stable growth of 2.7 percent.
“The Balearic economy is adapting to the challenges of the broader context, but it requires greater efficiency based on investment that can channel resources, talent, and technology. The green and digital transitions are direct drivers for increasing productivity,” says CAEB president Carmen Planas.
Employment is increasing while inflation erodes purchasing power.
The labor market once again showed very positive signs. Social Security enrollment increased by 3.4% during the first quarter, surpassing the national average (2.7%) and setting a new all-time record for this time of year with 523,115 workers enrolled. For the second consecutive quarter, the mark of half a million people employed has been surpassed.
At the same time, the unemployment rate fell to 5 percent of the labor force, three-tenths of a percentage point lower than at the end of 2025 and less than half the rate recorded for Spain as a whole (10.1 percent). The resurgence of tensions in energy markets triggered a new rise in inflation. In March, just over a month after the outbreak of the conflict in the Middle East, prices rose by 3.6 percent, compared to 2.4 percent in January and 2.2 percent in February.
Although much of the increase was due to rising prices of the more volatile components, especially fuels (7.8 percent), the pressure also began to affect core inflation, especially in the services sector, where inflation reached 3.9 percent. The performance of the hotel and restaurant sector was particularly notable, with a 7 percent price increase.
After moderating to 3.1 percent in April, inflation rose slightly again in May, standing at 3.4 percent. This continues to erode the purchasing power of Balearic households and, with it, their spending capacity. Both factors – job growth and loss of purchasing power – have been constant features over the last five years, forming a dichotomy that unions frequently refer to. Turning employment into well-being remains an unresolved problem in the Balearic Islands.
Private consumption continued to moderate, rising by 2.8 percent, marking five consecutive quarters of deceleration. Households are taking a more cautious approach to their spending decisions, despite positive employment figures, due to the drop in their purchasing power caused by the rising cost of living.
Construction gains ground
From a supply-side perspective, construction was the best-performing sector, with growth accelerating to 4.5 percent, driven by both an increase in the number of approved projects and the completion of new projects.
In contrast, the services sector continued to lose momentum, with 2.7 percent growth, while the industrial sector saw its growth slow even further to 1 percent, confirming the need to address structural challenges.
Meanwhile, investment consolidated its role as the main driver of domestic demand, growing by 4.3 percent – two-tenths of a percentage point more than at the end of 2025. This growth was, once again, mainly driven by construction-related investment, which has experienced three consecutive quarters of acceleration.
The start of 2026, marked by the outbreak of conflict in the Middle East, was in many ways a reminder of the situation in 2022 after the Russian invasion of Ukraine. Energy once again took center stage in international tensions, affecting commodity markets, inflation, and financial conditions.
However, major international organizations believe the economic impact could be more limited than it was then, provided the conflict does not drag on – a possibility that seems to have diminished following the agreement reached between the United States and Iran on June 17.
In this context, the Balearic Islands maintain solid, albeit more moderate, growth and continue to demonstrate remarkable adaptability. Economic activity remains at high levels and the labor situation continues to develop very favorably, although some sectors, especially services and industry, are showing signs of slowing down.
In this context, CAEB argues that the Balearic economy must take another step toward greater competitiveness through investment capable of mobilizing resources, attracting talent, and integrating technology into the productive sector. Making progress in the ecological and digital transitions, the business organization maintains, will improve productivity, strengthen the resilience of companies, and generate higher-quality, more sustainable growth in the long term.
