IMF Executive Board Concludes 2025 Article IV Consultation with Spain

The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Spain. The authorities have consented to the publication of the Staff Report prepared for this consultation

With a growth rate of 3.2 percent in 2024, Spain has been one of the fastest-growing economies in the euro area. Growth has been fueled by robust services exports and labor force growth, including due to immigration. Because high GDP growth has been accompanied by high employment growth, GDP per capita gains have been more modest. Despite recent progress, Spain still has one of the lowest employment rates in Europe, and a persistent gap in (hourly labor) productivity vis-à-vis the euro area and—even more so—the US.

Growth is projected to reach 2.5 percent in 2025 before slowing to 1.8 percent in 2026 as export and working-age population gains normalize. Growth will be primarily supported by private domestic demand, including due to a decline in the household saving rate and a pickup in investment. Inflation is projected to decline further and return close to the ECB’s target by end-2025.

• The Spanish economy has been performing strongly, supported by services exports and labor force growth. Growth is expected to remain significantly above the euro area average in the near term, before slowing gradually as its recent drivers normalize and demographic aging intensifies. Most risks are to the downside, including from a further escalation of trade measures and domestic political fragmentation.
• The authorities should seize the growth momentum to more swiftly rebuild fiscal space and reduce sovereign debt risks through a clearer consolidation strategy grounded in well-identified tax increase and spending reduction priorities. Additional measures should also be taken to address fiscal pressures from rising future pension expenditures, and to improve the pension system’s safeguard clause.
• Raising productivity is key to boosting income per capita gains, which have been modest since the pandemic. This should be achieved through a new wave of reforms to facilitate firms’ scaling-up and strengthen innovation.