Spain’s economy is feeling the effects of a maturing cycle as firms in all sectors continue to struggle with falling productivity and weakened external demand. The country’s Gross Domestic Product (GDP) was up 2.8% growth over last year. Things are beginning to change, though—signs of an unmistakable economic slowdown are beginning to appear. As Spain navigates these challenges, analysts predict a normalization of growth over the coming quarters, extending into 2026.
Spain’s economy grew by 0.6% in the July to September 2023 quarter. This expansion is more than eclipsed by the long stagnation in overall productivity measures. Productivity per hour worked grew by only 0.3% since one year ago. At the same time, productivity per worker fell by 0.5%. These alarming figures spike worries about the productivity of labor in fueling new, clean economic growth.
External Demand Weakens
Another key challenge for Spain’s economy is the weakening of external demand. The underlying import growth strengthened considerably, however, and was accompanied by negative external demand growth. In 2023, Spain’s exports of goods to the United States accounted for 1.26% of Spain’s GDP. This percentage is too low to offset the bigger economic hurdles Spain is contending with.
The other pillar of growth — the other big driver of this boom — the construction sector is seeing a pretty obvious deceleration. Growth in this sector plummeted from 2.4% to a pitiful 0.8%, though it had been one of the bright spots with strong 6.1% year-on-year growth before this downturn. This downturn marks the beginning of an era where the United States can no longer depend on construction as an economic driver.
The manufacturing sector certainly is not insulated from these struggles, either. It experienced a significant downward revision of its advance growth from 0.8% to 0.6% q-o-q sa. Non-manufacturing or services activity slowed, from 1.0% to 0.8%. This ominous change is part of a broader march toward lesser consumption and less capital investment across the entire economy.
Declining Retail Sales and Tourist Spending
Retail sales data paints a picture of a slowing economy, with retail sales growth slowing to just 4.2% year-on-year in September, down from 4.7%. This drop is particularly worrisome given the importance of consumer confidence and spending to the Spanish economy. On a positive note, tourist spending blasted up 6.7% YOY in August. That’s an improvement over last quarter’s estimate, and an indication that tourism may be one of the last places we see resilience amid broader economic worries.
However, such changes have not shaken projections for Spain’s GDP growth, which point to a normalization of sorts in the future. Our analysts project GDP growth to peak at around 2.7% come 2025. In the long term they expect this figure to drop to just over 2.2% in 2026. What these forecasts illustrate is that recovery is on the horizon, but not overnight. We’ll never go back to the same place of economic vitality.
Future Outlook for the Spanish Economy
Spain’s economy is indeed on a path toward stabilization. Now, it’s all about increasing growth and shoring up the economy’s weak underbelly. Productivity has tanked more recently, declining 0.4% per worker and per hour worked from the last quarter. This transition underscores the critical demand for more building—stem lasting growth.