Spain Sees Historic Drop in Unemployment Amid Growth but Faces Productivity Challenge
Spain's unemployment drops below 10% with strong job creation primarily in services, while low productivity growth poses economic concerns.
- • Spain's unemployment rate fell below 10% for the first time in nearly two decades.
- • Job creation is concentrated in private service sectors such as tourism and commerce.
- • Spain's GDP grew 2.8% in 2025, outpacing the Eurozone average despite low productivity increases.
- • Experts warn stagnant productivity amidst rising wages threatens sustainable economic growth.
Key details
Spain has achieved a landmark reduction in unemployment, falling below 10% for the first time in nearly 20 years. This milestone reflects a labor market recovery marked by a rise in employment and increased job stability through more permanent contracts and fewer temporary positions. The driving force behind this employment growth has been the private sector, particularly in services sectors such as domestic consumption, hospitality, commerce, and tourism, which have rebounded strongly following the pandemic.
However, despite these encouraging employment figures, Spain's economy grapples with a paradox of slow productivity growth amid robust GDP expansion. In 2025, Spain's economy grew by 2.8%, surpassing the Eurozone average of 1.5% and outperforming countries like Germany, France, and Italy. Yet, productivity per hour worked increased by less than 0.7%, and productivity per worker actually declined by 0.3%, raising concerns about future competitiveness and technological advancement.
Experts highlight that the labor market improvements rely heavily on labor-intensive service sectors, which are sensitive to economic cycles and have limited capacity for broad productivity gains. Meanwhile, sectors such as construction and agriculture have seen little to no job growth, and the industrial sector's performance remains irregular. This concentration underscores the challenge to diversify employment sources to enhance sustainability.
Gregorio Izquierdo, director general of the Instituto de Estudios Económicos, warned of an alarming disconnect between the approximately 8% increase in wages and stagnant productivity levels, suggesting economic growth risks becoming unsustainable without productivity improvements. The Cámara de España and BBVA Research have stressed the necessity for fiscal adjustments exceeding €3 billion in 2026 and nearly €7 billion the following year to comply with EU spending norms.
Despite subdued productivity, the government is optimistic about continued recovery, buoyed by a 6.3% investment increase fueled mainly by European funds and the creation of approximately 600,000 full-time jobs. Inflation declined to 2.4% as of January, supported by lower energy costs. Yet, the overarching challenge remains—to foster productivity growth that complements the expanding workforce, ensuring durable economic health and competitiveness.
This article was translated and synthesized from Spanish sources, providing English-speaking readers with local perspectives.
