In the presentation of its 2025 Annual Report, the Bank of Spain said Spain’s economy grew 2.8 percent in 2025, 0.7 percentage points less than in 2024 but still faster than the euro area, supported by domestic demand, durable goods consumption and investment. The report said core inflation has diverged further from the euro area because of persistent services inflation, while the labor market has remained strong but the decline in unemployment has been limited by weaknesses in active labor market policies and incentives to bring unemployed people back into work. It also points to two main medium-term challenges: raising productivity and business growth, and addressing worsening housing access caused by strong demand and restricted supply. On productivity, the Bank of Spain said total factor productivity has improved since 2013 after a long period of divergence from the rest of the euro area, with part of the gain coming from a larger weight of more productive firms within sectors. Stronger corporate balance sheets through deleveraging and higher equity funding, a tighter link between investment and productivity, better bank credit allocation toward more productive firms, and venture capital support for faster-growing companies have all contributed to that shift. Even so, the report said convergence remains slow, estimating that if total factor productivity grows at 0.5 percent a year the gap would close only by 2050, and it identifies regulatory fragmentation, uneven territorial rules, weak administrative coordination, skills mismatches, and technology transfer including the spread of artificial intelligence as the main constraints. On housing, the report said purchase and rental prices are rising faster than household income and that the cumulative gap between new housing completions and net household creation has widened since 2021 to about 750,000 homes. Demand has been reinforced by demographic growth, easier financial conditions, tourist rentals and nonresident buyers, while supply is held back by land and planning constraints, lower productivity and small firm size in construction and development, labor shortages, and a public housing stock that is small by international standards and therefore unable to absorb affordability pressures.
Bank of Spain2026-07-09
Bank of Spain presents 2025 annual report highlighting 2.8 percent growth productivity financing gains and a 750000 home shortfall
In presenting its 2025 Annual Report, the Bank of Spain said Spain grew 2.8 percent in 2025, led by domestic demand, but still faces persistent services inflation, slow productivity convergence and worsening housing affordability. The report links post-2013 productivity gains to stronger corporate balance sheets, better bank credit allocation and venture capital, while estimating a housing shortfall of about 750,000 homes since 2021. It says regulatory fragmentation, weak technology transfer and chronic housing supply constraints remain the main structural obstacles.