Spain Faces Sharp Decline in Competitiveness Amid Euro Appreciation and Rising Costs

Spain is experiencing its steepest decline in economic competitiveness since 2008, jeopardizing its export capabilities and attractiveness for foreign investment. According to the Bank of Spain, the country's competitiveness index fell by 2.8% year-over-year as of December 2025, continuing a downward trend that began the previous year. Experts attribute this drop largely to the appreciation of the euro and rising inflation, which have driven up Spanish export prices, making them less competitive in international markets. Labor costs have also surged significantly since 2025, compounding the problem by outpacing productivity gains.

Senior economist María Jesús Fernández highlighted that while there was a slight improvement in export prices in 2025 despite euro strength, the overall trend remains negative. José Emilio Boscá noted that although wage increases help recover lost purchasing power, they have not kept pace with productivity, further eroding competitiveness. Meanwhile, BBVA Research's Miguel Cardoso predicts a 2-point decline in exports directly tied to the strong euro.

Additional pressures include high electricity costs and concerns about the "Dutch disease," where tourism sector growth could hinder other segments of the economy. Spain's export growth has slowed since the pandemic, with fewer regular exporters and worsening relative prices against major trading partners.

In response to economic challenges, Prime Minister Pedro Sánchez defended Spain’s overall economic growth, citing a 2.8% GDP increase and nearly 22 million employed individuals as signs of resilient progress. Speaking at a rally in Ponferrada, Sánchez rejected opposition criticisms, emphasizing inclusive growth backed by initiatives like the "España Crece" plan, which allocates €120 billion to strategic infrastructure, innovation, and welfare projects.

Sánchez underscored social policies including a minimum wage increase focused on young and female workers, progressive taxation to reduce inequality, and the constitutional right to housing. He also pointed to climate policy and countering far-right narratives as key government priorities. Despite the current competitiveness concerns, Sánchez expressed confidence in Spain's forward trajectory and commitment to maintaining governance until 2027 and beyond.

Overall, Spain faces pressing structural challenges that require reforms to boost productivity and manage inflation differentials within the Eurozone to safeguard economic balance and future growth.