Spain’s Economic Growth Slows in Q3 2025 Due to Weakening External Trade

Spain's economy recorded a slowdown in its growth rate during the third quarter of 2025, primarily due to adverse developments in foreign trade, according to reports from the National Institute of Statistics (INE) and the Spanish Confederation of Employers' Organizations (CEOE).

The INE revealed that Spain's quarterly GDP growth dropped to 0.6%, marking a decline of two-tenths compared to the previous quarter, with foreign trade detracting 0.6 percentage points from growth. Exports to the European Union, which accounts for over 61% of Spain's trade, showed a year-on-year decline of 0.6% from January to August. Critical export markets such as France and Germany saw significant reductions of 6.3% and 2.5%, respectively. Further compounding export challenges, the imposition of a 15% tariff on European products by the United States led to an 11% decrease in Spanish sales to the EU in August alone.

Despite these external headwinds, domestic demand continued to bolster the economy. Private investment surged by 1.7% in Q3, representing a strong 7.6% annual increase, and contributed 1.2 percentage points to GDP growth. The CEOE highlighted that internal demand, growing at 1.2% quarterly, remains the principal engine of growth, which they forecast to be 2.9% for 2025 and 2.3% for 2026.

However, concerns remain over the sustainability of this growth. CEOE reports a productivity decline of 0.5% year-on-year alongside a 4% rise in unit labor costs, diminishing Spain’s competitiveness. Worryingly, the Gross Operating Surplus (EBE) is expanding at a slower pace than GDP, with its ratio to GDP at a low 41.5%, potentially constraining future corporate investments.

The Ministry of Economy acknowledges the positive signs in domestic demand and investment but remains cautious due to the impending cessation of Next Generation EU funds in 2026 and the ongoing economic stagnation in Europe. Analysts also warn about the risks posed by heavy reliance on public spending to drive growth amid these external pressures.

In summary, while Spain retains steady overall economic growth, the third quarter's data highlight the critical challenges facing the country’s external trade sector, with weaker exports and increased tariffs offsetting domestic dynamism and raising concerns about future economic resilience and competitiveness.