Spain’s economy has outperformed much of the eurozone in recent quarters, which has helped boost the housing market, but a new report from Esade warns that this strength may be short-lived.
According to the latest Economic and Financial Report by Esade, prepared with support from Sabadell Bank, Spain’s GDP growth will moderate in the next two years as the country grapples with both global economic uncertainty and long-standing structural imbalances—chief among them, the chronic dysfunction of the housing market.
Growth forecast to ease as challenges accumulate
The report projects that Spain will close 2025 with a healthy 2.5% increase in GDP. But looking ahead, the tempo is set to taper: projections for 2026 and 2027 forecast growth of 1.9% and 1.7%, respectively. Although still in positive territory, the deceleration reflects rising concerns over macroeconomic headwinds, fuelled by geopolitical turmoil and the unpredictability of US trade policies.
Domestically, a handful of vulnerabilities will also increasingly weigh on performance. Toni Roldán, director of the report and of the Esade Centre for Economic Policy (EsadeEcPol), acknowledges that while Spain remains relatively strong in a European context, the momentum is at risk: “Spain is currently performing well. But its growth will likely slow due to increasing geopolitical and financial instability worldwide, along with internal, structural imbalances.”
Housing market imbalance tops list of structural risks
Chief among these domestic pressure points is housing. Esade identifies a serious and worsening mismatch between supply and demand in the Spanish property market. Home prices rose by 12.3% year-on-year in the first quarter of 2025, pushed up by sluggish residential development and rising demand from both local and foreign buyers.
The report argues the housing shortage—estimated at a shortfall of 200,000 new homes every year—is now so acute that it poses a threat to broader economic stability. Making matters worse, “current regulation may be having the opposite effect to that intended,” warn economists Josep M. Comajuncosa and Manuel Hidalgo, co-authors of the report.
The authors call for immediate, far-reaching reforms to stimulate housing construction, streamline planning regulations, and address affordability—before the situation morphs from a social crisis into an economic liability.
The not-so-invisible hand of policy and pricing
Despite these concerns, Spain’s recent growth has been largely underpinned by six key factors: supportive demographics, robust exports, healthy household and corporate finances, falling interest rates, EU investment via the Next Generation EU funds, and lower energy prices—thanks in part to the country’s continued rollout of renewable energy.
These remain important tailwinds, but the authors caution that they are unlikely to fully offset the drag from unresolved structural issues and external risks, including tariff-happy US trade policy under a potential Trump administration.
On this front, Esade’s tone is cautiously optimistic. Spain’s exposure to abrupt changes in US economic policy is comparatively low, and current geopolitical tensions may even foster opportunities—for example, the growing potential for renewed economic integration between the UK and EU.
Public debt and productivity: more flies in the ointment
Beyond housing, the report draws attention to Spain’s persistent structural deficit—still stubbornly above 3% of GDP—and its underwhelming productivity levels. Despite progress in digitalisation and innovation, Spain’s productivity remains below the European average, dampening competitiveness and limiting wage growth in the long run.
The authors make the case for fiscal consolidation that doesn’t starve public investment: “The turning point in German fiscal thinking, with a greater focus on strategic spending, could be an encouraging precedent for Spain and others.”
Migration integration seen as a potential benefit, not burden
A final pillar of the report shines a spotlight on immigration. Spain has experienced a notable influx of migrants in recent years, a contributing factor to its relatively strong growth performance. But as the workforce grows more diverse, so too does the need for integration.
“Properly managed, immigration presents a huge opportunity,” says Roldán. “The social costs exist, yes, but the benefits far outweigh them—if we get the integration piece right.” The report calls for better public communication and policy programmes to convert demographic trends into economic dividends.
Conclusion: course correction required
Spain’s short-term outlook remains relatively solid, especially in comparison to European peers. But the report makes it clear: if structural imbalances—particularly in housing—are not addressed, today’s growth could easily become tomorrow’s fragility. The policy window is still open, but closing fast. For Spain’s economy to stay on track, political will and pragmatic reform will be needed sooner rather than later.
