Spain's Economy Grows in 2025 but Citizens Face Rising Cost of Living and Decreasing Real Wages

Spain concluded 2025 with robust economic growth, boasting a GDP expansion of 2.9%, well above the eurozone average, with forecasts suggesting continued growth of around 2.2% to 2.3% into 2026. This growth has been primarily driven by domestic demand, private consumption, and investment, shifting away from external factors such as exports. The labor market showed improvement, with unemployment at about 10.4% and job creation exceeding 3%, alongside record Social Security affiliations.

However, despite these positive macroeconomic indicators, many Spaniards are experiencing a decline in their real purchasing power. Inflation has cumulatively surpassed 22% since 2020, outpacing wage increases which have only risen by 17% over the same period. This discrepancy means that workers are effectively poorer in 2025 compared to five years earlier, as salaries have not kept pace with living costs. The rising cost of living paired with stagnating wages has led to a widespread perception of worsening personal financial conditions among citizens.

Additional economic challenges include declining productivity, rising labor costs with unit labor costs increasing by 3.7%, and pressures on business margins. The country is also facing weak exports and a worsening non-energy trade balance. Inflation, which is projected to decline to just above 2% in 2026, could help sustain purchasing power if it continues as forecasted. Meanwhile, businesses face uncertainty from economic policy, increasing energy costs, and a slow recovery for microenterprises.

Prime Minister Sánchez highlighted the important role of tourism and immigrant workforce participation in driving growth. However, economic experts stress the need for improving productivity, competitiveness, and adaptability among businesses to address structural fragilities and to ensure that economic growth translates into better living standards for Spaniards.

As Spain moves into 2026, the central challenge remains striking a balance between sustaining solid GDP growth and addressing inflation-driven erosion of real wages and living standards for its citizens.