OECD Economic Surveys SPAIN 2025 Executive summary
November 2025
• Growth has been steady and resilient amid rising global risks
• Growth will moderate but remain robust
• Securing fiscal sustainability is key amidst long-term spending pressures
• Higher productivity growth requires strengthening the performance of small and medium-sized enterprises
• Harnessing the potential of older workers and migrants would help with the ageing challenge
• Spain needs to strengthen climate resilience, advance decarbonisation, and continue addressing energy security
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GROWTH HAS BEEN STEADY AND RESILIENT AMID RISING GLOBAL RISKS
The Spanish economy has shown resilient and steady GDP growth in the last years, surpassing European peers. Economic growth has been robust across sectors, driven by strong private consumption on the back of a growing labour force, a recovery in the tourism sector, investments from the EU Recovery and Resilience Funds, and increased government spending. However, income convergence with most advanced countries remains limited. A rapidly ageing population, increasing but still low employment rates, low productivity growth, and the climate transition call for medium-term strategies to support growth and to strengthen fiscal sustainability.
The Spanish economy has held up remarkably well, posting GDP growth above other European countries and most economic projections. After a slow recovery following the pandemic, the Spanish economy has shown a balanced, resilient and steady economic growth in the last years (Figure 1). Compared to previous recovery periods, the post-pandemic period has seen broad-based job creation, increased productivity, and reducing reliance on foreign capital. This has been accompanied by lower-than-expected inflationary pressures that have supported real income gains. The external sector holds firm amid trade uncertainty, with a steady widening of the current account surplus supported by strong services exports. GDP per capita, however, has expanded at more moderate rates, largely as a result of a strong population growth driven by migration flows. Migration has contributed positively by boosting labour supply and supporting key sectors, contributing around 0.7 percentage points to annual GDP per capita growth between 2022 to 2024.
Spain’s labour market has shown impressive strength in recent years, but it faces deep rooted structural
challenges. Job creation has been robust, boosted particularly by migrant workers. The unemployment and the share of temporary jobs have declined to historically low levels. However, despite recently increasing, Spain’s overall employment rates, remain below the OECD averages and unemployment, at 10.5%, is the highest among European peers. Continuing to enhance active labour market policies, strengthening regional employment offices and the quality of the training system would help raise employment and lower unemployment rates. Also, as in other countries, temporary sick leave has increased but Spain has experienced a sharp rise in long-duration and repeat cases of 52% since 2018. Boosting healthcare staffing and quality by expanding capacity and tightening oversight could lower absenteeism.
Structural reforms are needed to lift GDP per capita and strengthen fiscal sustainability. Fostering the use of more advanced digital tools, promoting innovation, further strengthening skills and labour supply are central. Reforms should also focus on expanding housing supply and implementing cost-effective climate policies.
Gross domestic product, volume, seasonally and calendar adjusted data, index 2019Q4 = 100
Source: Eurostat.
GROWTH WILL MODERATE BUT REMAIN ROBUST
GDP growth is projected to reach 2.9% in 2025, 2.2% in 2026 and 1.8% in 2027. Domestic demand will remain the key driver of growth, while mild fiscal consolidation is expected in the coming years. Rising geopolitical tensions, higher trade uncertainty and tariffs have lowered external demand and pose downside risks to the outlook.
Domestic demand will support growth. Disbursements of the Recovery, Transformation and Resilience Plan (RTRP) funds and lower interest rates will boost investment. Consumption will be underpinned by a solid labour market and real income gains, with inflation reaching 2.3% in 2026 and 1.8% in 2027. Export growth will slow, reflecting weak demand in trading partners as a result of increases in trade uncertainty and in tariffs (Table 1).
Downside risks remain elevated. Heightened geopolitical tensions and global trade fragmentation could weaken export growth. Increased uncertainty, and tighter global financial conditions could dampen confidence, affecting private consumption and business investment, weighing on economic growth.
Financial risks are low but continued close monitoring is needed. Private sector financial health has improved, while
lending to both households and non-financial firms has resumed moderate growth. Banks remain well capitalised and profitable despite tighter financial conditions. The Bank of Spain has introduced a positive countercyclical capital buffer (CCyB) of 0.5% effective in October 2025, increasing to 1% the following year, which is welcome. Continued close monitoring and encouraging prudent provisioning are essential to strengthen further financial resilience.
Spain’s housing market faces structural challenges. Persistent supply bottlenecks in high-demand areas, combined with rising housing demand, are driving upward pressure on prices. Further increasing the supply of affordable housing remains central. Accelerating land development procedures and expanding investment in social housing beyond what is currently planned by leveraging for- profit and non-profit actors could help expand social housing faster and at a lower fiscal cost.
Table 1. Growth will remain robust but moderating
Source:
SECURING FISCAL SUSTAINABILITY IS KEY AMIDST LONGTERM SPENDING PRESSURES
Spain’s public finances have improved with public debt decreasing since 2021, yet it remains elevated. Looking ahead, long-term fiscal pressures are projected to rise, driven primarily by population ageing and rising pension costs, along with climate-related expenditures and increased defence spending. To navigate these pressures without compromising growth, it is essential to maintain a credible medium term fiscal policy while creating room for growth-enhancing spending combined with policies to foster potential growth.
Mild fiscal consolidation continues. The fiscal deficit and public-debt-to-GDP declined to 3.2% of GDP and 101.8% GDP in 2024, respectively. Given the strong growth momentum, accelerating the pace of deficit reduction would allow Spain to faster rebuild fiscal buffers to respond effectively to future shocks or downturns.
Public debt is set to increase in the medium term in the absence of reforms. The government’s medium term fiscal plan outlines a gradual consolidation path to reduce the fiscal deficit to 0.8% by 2031 and bring public debt to 90.6% by 2031. However, the government plan could include more detail on the concrete policy measures to achieve these goals. Moreover, under current policies, the debt to GDP ratio would significantly increase in the 2040s amid high ageing related costs (Figure 2). Placing debt on a firmly declining path requires addressing the rise in pension spending, reducing inefficient spending and improving tax revenues.
Additional measures are needed to address fiscal pressures from rising future pension expenditures.
According to Spain’s independent fiscal council, pension spending alone is projected to rise by 3.2 percentage points of GDP from 2023 to 2050, while ageing-related spending could increase by up to 5.2 percentage points, slightly below previously forecasted. Despite recent reforms, including increases in the legal retirement age, the extension of the contributory period, the Intergenerational Equity Mechanism (IEM) and the reform to the special scheme for self-employed workers, the gap between pension expenditure and revenues is projected to widen over the coming decades. Additional increases in social security contributions would further raise the labour tax wedge and could hurt employment. A balanced
set of reform options should be considered including establishing a life expectancy adjustment, extending the reference period for the computation of pension rights or similar mechanisms. Ensuring regular, dynamic and forward-looking monitoring of pension spending pressures is also key.
A detailed medium-term fiscal strategy and enhanced spending prioritization are also essential. Revising the national fiscal rules to mirror the EU framework and ensure consistency of criteria, would support credibility and the implementation of the medium-term fiscal plan. Aligning spending with long-term growth priorities, supported by spending reviews and robust cost-benefit analysis, would further help fiscal consolidation.
There is room to rebalance the tax mix towards less distortionary taxes. Spain’s tax-to-GDP ratio at 37.3% of GDP in 2023 is higher than the OECD average of 33.9%. However, it places a high burden on labour taxes potentially discouraging employment and job creation, while collecting less from consumption than EU and OECD peers. A more comprehensive tax reform that rebalances the tax mix towards less distortionary taxes could improve equity and efficiency while raising revenue. Options include harmonising VAT rates and reducing exemptions, equalizing diesel and gasoline excise duties, and strengthening energy and vehicle taxation, combined with reducing tax wedges for low-income families.
Projected change in ageing-related costs over 2024-2044, percentage points of GDP
Note: Updating the Ageing Report projections for Spain using the observed GDP data for 2022 and 2023 leads to ageing-related costs of 3.2% of GDP from 2023 to 2050 according to (AIREF, 2025[1]).
Source: EC (2024), The Ageing Report: Economic and Budgetary Projections for the EU Member States (2022-2070), European Commission.
HIGHER PRODUCTIVITY GROWTH REQUIRES STRENGTHENING THE PERFORMANCE OF SMALL AND MEDIUM-SIZED ENTERPRISES
Spain has shown a positive performance in hourly labour productivity since 2022. However, it still maintains a significant gap with the European Union (Figure 3, Panel A). SMEs, which represent 99% of all firms and employ most of the workforce, mainly in services, tend to be significantly less productive than large firms (Figure 3, Panel B) owing to limited access to external finance and skilled labour, as well as lower innovation adoption and weaker advanced digital uptake.
Improving access to finance and reducing administrative burden is critical for SMEs growth. Promoting the use of market-based financing among SMEs by encouraging public-private cooperation to connect high growth potential SMEs with capital market participants can expand access to financing for SMEs, which heavily rely on bank loans. Regulatory complexity and tax compliance costs disproportionally affect smaller firms. Reviewing and streamlining these regulations, especially at the subnational level, can remove growth disincentives.
Increasing the use of more advanced digital tools among SMEs is essential to boost productivity growth. Spain has made important strides in digitalisation, but adoption of advanced digital technologies, such as data analytics, cloud computing and process automation
has been slower outside large firms. To promote uptake among SMEs, Spain should fully leverage the Recovery and Resilience Plan funding to expand targeted digital advisory and training tailored to SMEs.
Innovation activity is dominated by a small number of large firms, with limited participation from SMEs. Many smaller firms face information gaps about public support programmes, complex administration procedures and weak links with innovation systems. Raising awareness of public innovation support, facilitating access to it, and strengthening collaboration between SMEs and research institutions can significantly boost innovation.
Addressing skills mismatches and encouraging workforce upskilling is key to supporting firm productivity. Two thirds of SMEs report difficulty hiring workers with the right skills, while many lack resources
Figure 3. Despite recent improvements, labour productivity is low, particularly among micro firms
A. Labour productivity
Nominal GDP per hour worked
B. Labour productivity by firm size
Value added per person employed, thousands USD, current PPP, 2023 or latest year
to develop and implement training strategies. Despite significant progress in SMEs’ participation in vocational education and dual training models since a recent reform, many SMEs aren’t yet taking full advantage of these programmes. Streamlining access to subsidized training by simplifying procedures and improving outreach to SMEs could increase uptake.
HARNESSING THE POTENTIAL OF OLDER WORKERS AND MIGRANTS WOULD HELP WITH THE AGEING CHALLENGE
An ageing population and low employment rates among older workers risk reducing labour supply, slowing potential growth, and increasing fiscal pressures, despite supportive tailwinds from rising migration in recent years. Recent reforms have taken steps to address these challenges by promoting longer working lives through more flexible retirement pathways and improving the integration of migrants via expanded legal channels and streamlined regularisation. Building on these reforms, further efforts are needed to strengthen incentives for older workers to remain active, promote upskilling and lifelong learning, and better align migration and skills policies with evolving labour needs.
Population ageing is advancing faster in Spain than in most OECD countries. By 2054 there will be a 41-percentage point increase of the ratio of older people over working population compared to 2024 according to OECD data (Figure 4, Panel A). This demographic shift will reduce labour supply, slow potential output growth and place growing pressures on public finances. Further tapping the employment potential from older workers and migrants can partially offset some of the demographic drag and support sectors facing current and projected labour shortages.
The employment rate of older workers has risen over the past two decades but remains low. Older workers represent a growing share of the population, yet their employment rate lags OECD levels and falls sharply after 55 due to early retirement, skill obsolescence, and limited workplace adaptability. Gradually extending the effective age of labour market exit by incentivizing later retirement, while expanding flexible work arrangements options have been steps in the right direction. However, the design of non-contributory unemployment assistance for workers above 52 still deters working incentives (Figure 4, Panel B) and should be reformed. Introducing individual training vouchers for older workers, focused on sectors with labour shortages or technological change can help increase participation in lifelong learning among this group.
Figure 4. Population ageing will put pressure on Spain’s labour market
A. Foreseen rise in the old-age dependency ratio Old-age to working population (20-64-year-olds), 2024-2054 change
B. Unemployment assistance beneficiaries by age group
Note: Panel A: the calculation of the old-age
Migrants’ labour market integration shows both strengths and structural gaps. Spain has increasingly attracted more skilled migrant workers, mostly of working age and often finding jobs quickly upon arrival. Despite recent improvements, many still face low job quality, informality and weak social mobility. Recent reforms expanded legal migration pathways and regularisation, but efforts are needed to scale up early integration support in language training, job search assistance and vocational orientation, as well as ensuring early and successful integration of second-generation youth.
Enhancing the strategic responsiveness of the migration system could attract more talented foreign workers. Spain’s migration system has historically had limited alignment to actual labour shortages and often has been reactive. Simplifying pre-arrival work visa procedures, increasing bilateral labour agreements, streamlining and accelerating degree recognition through digitalisation, clear timelines, and increased staff capacity could attract more skilled migrants and help ease labour shortages, especially as the baby boom generation retires. Promoting more effective use of EU-level mechanisms to attract talent can also be useful.
SPAIN NEEDS TO STRENGTHEN CLIMATE RESILIENCE, ADVANCE DECARBONISATION, AND CONTINUE ADDRESSING ENERGY SECURITY
Spain is among the European countries most exposed to climate change, experiencing some of the most severe human and economic losses (Figure 5). Rising temperatures, frequent and intense droughts, floods, heatwaves, and wildfires increasingly threaten the country’s future growth, environment, and public health. Enhancing resilience will require targeted adaptation investments, and robust infrastructure. Spain is a frontrunner in the expansion of renewable electricity generation. Decarbonisation policies must continue to prioritise streamlining permitting processes and accelerating investment in grid infrastructure while supporting investment in storage and developing measures to encourage demand-side responses.
Climate-related disasters have increasing economic costs. Despite advances in disaster risk reduction and climate change adaptation, losses from disasters are increasing. Spain’s disaster financing framework is regarded a solid model thanks to the strong performance of the Consorcio de Compensación de Seguros (CCS). However, disaster frequency and severity are increasing, highlighting the need to maintain the long-term financial sustainability of the CCS. The increased duration and frequency of heatwaves is raising health risks and reducing productivity especially in cities, raising the need for further integrating heat adaptation into urban planning and building codes.
Flooding, one of Spain’s most damaging natural hazards, is intensified by the urbanisation of high-risk areas. Restricting new development in high-risk flood zones, discouraging further exposure, and expanding flood protection infrastructure through streamlined regulatory processes can significantly mitigate economic and human impacts.
Water scarcity poses chronic challenges, aggravated by underpriced water and inadequate incentive structures for conservation. Spain should reinforce demand-based measures, including water allocation reviews in the hydrological planning process for water conservation, reform water pricing to reflect full cost recovery, including environmental externalities and scarcity. Exploring long-
term marginal water pricing in agriculture and tradable water rights could help improve efficiency and resilience, while supporting conservation efforts.
In Spain, renewable electricity has significantly expanded, with solar and wind power now supplying over half of its annual generation — keeping the country on track to meet its decarbonisation goals. However, electricity demand is projected to rise by more than 40% by 2030. This growth reinforces the need to continue expanding investments in grid infrastructure, interconnections, and storage, while implementing measures to face curtailment and grid congestion.
Transport-related emissions account for almost onethird of Spain’s emissions. Rising vehicle ownership and mobility demand, along with weak price signals to switch to cleaner alternatives have partially offset efficiency gains. A cost-effective decarbonisation path requires higher diesel excise, removal of freight fuel rebates alongside congestion charging, with revenue recycled into rapid-charging corridors and high-capacity public transport. Spain’s current rail freight share (4%) is among the lowest in Europe, and fragmented infrastructure and limited electrification hinder its competitiveness. Interoperable and electrified rail freight corridors with enhanced rail-ports and logistic hubs connections are key to decarbonising logistics and alleviating pressure on road networks.
Figure 5. Climate related economic losses and fatalities are among the highest in Europe
Economic losses per capita and fatalities per million inhabitants over the period 1980-2024
