By Aida Caldera, Claudia Ramírez and Dimitris Mavridis, OECD
Since the pandemic, Spain’s economy has grown robustly and faster than most peer countries in the Euro Area (Figure 1). Growth has been supported by strong investment, particularly public investment, rising exports in services and a rapid expansion of the labour force, as many migrants, mainly from Latin America, have integrated quickly into work. Employment is growing across sectors, while unemployment dropped from around 15% in 2021 to 10.5% in September 2025, although it remains the highest in the European Union. Temporary contracts—long Spain’s vulnerability— have fallen from over 25% to roughly 16% in the three years after the 2021 labour market reform.
Beneath these encouraging headlines a productivity challenge threatens to undermine Spain’s long-term prosperity, as highlighted in the recently released 2025 Economic Survey of Spain. Sustained growth and income convergence with other OECD peers depend on accelerating productivity growth and harnessing untapped resources.
Figure 1. GDP growth has surpassed European peers recently
Gross domestic product, volume, seasonally and calendar adjusted data, index 2019Q4 = 100
Source: Eurostat.
The productivity challenge
Spain is creating jobs faster than most of Europe, and productivity per worker has grown since 2022, notably in commerce, transport, and hospitality. Despite this improvement, GDP per hour worked in Spain was still 7% below the EU average in 2024 (Figure 2, Panel A). This productivity shortfall isn’t confined to one lagging sector—it affects tradable and non-tradable activities alike, as well as firms of all sizes.
GDP growth will remain robust at 2.9% in 2025, 2.2% in 2026 and 1.8% in 2027, as the expansion of tourism normalizes, and immigration flows moderate. To sustain this growth momentum, and accelerate income convergence, strengthening productivity growth will be key.
The SME opportunity
Small and medium-sized enterprises lie at the centre of Spain’s productivity challenge, and they are equally central to overcoming it. SMEs make up 99% of all Spanish firms and employ nearly two-thirds of the workforce, placing them at the centre of the country’s economic engine. Yet, compared with their counterparts in peer countries, Spanish SMEs tend to be smaller, grow more slowly, and operate at significantly lower productivity levels than OECD top performers (Figure 2, Panel B). These gaps reflect the tighter financing constraints SMEs face, their lower rates of innovation, and the disproportionate regulatory and compliance burdens they bear relative to SMEs in many other European economies.
Aware of these challenges, Spain has launched an ambitious SME agenda backed by the Recovery, Transformation and Resilience Plan, which allocates about 40% of the funds in grants to entrepreneurship, digitalisation, and internationalisation. Yet, more can be done to unlock SME potential:
- Improving access to finance by strengthening market-based funding channels and connecting small firms with capital market participants, while raising awareness among smaller businesses of available non-bank financing options.
- Streamlining regulation and administrative procedures costs that weigh heaviest on smaller firms, including phasing-in regulatory thresholds that lead to sudden increases in compliance costs when firms grow.
- Simplifying application and reimbursement procedures for R&D public support, including by creating a “one-stop-shop” digital platform.
- Closing skills gaps through more accessible training offers, simplified procedures and better outreach so SMEs can systematically invest in workforce upskilling and reskilling.
When combined, these initiatives can help smaller firms realize their full potential. Even modest productivity gains across thousands of SMEs would translate into sizeable aggregate effects and sustained income convergence.
Figure 2. Despite recent improvements, labour productivity remains below EU
Note: In Panel B, 5 best performers for large firms excludes Ireland and Norway where labour productivity exceeds 416,000 USD in 2023.
Source: OECD Productivity levels Statistics; OECD Structural Business Statistics.
Harnessing the potential of older workers and migrants
The urgency of Spain’s productivity challenge becomes even clearer when demographics enter the picture. An ageing population and low employment rates among older workers (Figure 3) risk reducing labour supply, slowing potential growth, and increasing fiscal pressures, despite supportive tailwinds from rising migration in recent years. Spain faces one of the steepest demographic transitions in the OECD, with the old-age dependency ratio projected to rise by about 41 percentage points between 2024 and 2054. Yet, within these challenges lies untapped potential that can be turned into gains if bold responses are undertaken:
- Reforming non‑contributory unemployment assistance for over‑52s, which currently acts as a de facto early retirement. This can be addressed by limiting duration, restricting pension accrual to the unemployment insurance phase only, introducing means‑testing and strengthening activation requirements.
- Extending working lives by aligning pension incentives more closely with longer life expectancy, while improving working‑conditions and training options for older workers—for example via individual training vouchers co‑funded with employers.
- Making better use of migration: foreign‑born workers already represent a large share of recent job creation, but many are overqualified for their jobs. Simplifying and speeding up degree recognition and making migration channels more responsive to labour‑market needs would raise both efficiency and equity.
Figure 3. Raising employment at older ages is central to meet Spain’s demographic challenges
Employment rates by age, %, 2024
Source: OECD Labour force statistics.
The bottom line
Spain’s recent economic performance has been strong. Maintaining this momentum requires shifting gears from job creation to sustained productivity growth. Policy priorities should continue to empower SMEs through better finance and less red tape, activate the older unemployed, extend working lives, and unlock migrant talent. Spain now has a window of opportunity to push ahead with reforms. The choices made in this phase will determine whether today’s resilience becomes tomorrow’s convergence.
References:
OECD (2025), OECD Economic Surveys: Spain 2025, OECD Publishing, Paris, https://doi.org/10.1787/abc5c435-en.