Spain Faces Capital Market Hurdles Amid Rising Debt and Declining Equity in 2025

Spain's financial markets in 2025 continue to exhibit significant challenges despite a modest growth in corporate financing, driven mainly by debt issuance amid declining equity activities and weak household investment. According to the Association for Financial Markets in Europe (AFME), Spanish non-financial corporations raised €16 billion in the first half of the year, a 6% increase over 2024. However, market-based financing accounts for only 7% of total corporate financing, substantially lower than the EU average of 13% and far behind the 29.8% seen in the US and UK.

Debt issuance surged with investment-grade bonds reaching €10.8 billion (up 3%) and high-yield bonds climbing by 42% to €4 billion, marking historic highs for Spain. In contrast, the equity market faltered; initial public offerings (IPOs) fell by 49% to only €800 million, and capital increases dropped by 31% to €400 million. This decline limits companies' access to long-term, diversified financing.

Household investment in capital markets remains a persistent weakness, standing at 66% of GDP compared to the EU average of 94%. This low retail participation restricts market liquidity and depth, creating obstacles for a robust capital market ecosystem. The fintech sector shows some growth with increased M&A activity and exits but faces setbacks in innovation and investment, with a 10% drop in funding and a 2% decrease in patent registrations.

Spain holds the sixth position in Europe for ESG bond issuance, although total volumes fell 12% year-on-year. Notably, green bonds declined by 40%, and social bonds issuance ceased entirely, despite a 181% rise in sustainable bonds overall.

AFME's executive director, Adam Farkas, emphasized the critical need to simplify and clarify the European regulatory framework to reduce costs and complexity. He noted, "Regulatory reform is urgent to bolster investment and innovation, allowing European companies to compete globally and access international capital." The report highlights that without increased household participation and regulatory ease, Spain's capital markets may continue lagging behind global standards and its EU counterparts.