Spanish productivity has grown by 1.4% annually since the pandemic, boosting its contribution to GDP growth despite stagnation across Europe

The Third OPCE Report Calls for Greater Business Dynamism and Skills Development to Sustain Productivity Gains

Significant recent global economic disruptions have had, so far, only a limited impact on Spain’s trajectory. Since 2020, the Spanish economy has grown above the European average, and its GDP per capita has recorded the second-largest increase among advanced European countries since the pandemic—at an annual rate of 3.78%, behind only Italy (3.87%) and well above the EU-27 average (2.42%) or major economies such as Germany (0.65%). This positive development reflects a shift in Spain’s growth pattern, which now relies more on productive efficiency than in the past. The economy is no longer driven solely by increases in employment and capital (machinery, equipment, real estate assets, infrastructure), but also by improvements in the efficiency of resources used—known as TFP (total factor productivity).

The fact that the Spanish economy is making better use of its accumulated investments and its workers is confirmed by the fact that TFP has grown at an annual rate of 1.4% since 2020, compared to stagnation in the EU-27 and declines in Germany (-0.3%) and France (-0.6%). In addition, this improvement has been accompanied by strong job creation: more than 2.4 million new jobs since 2020, making employment the main source of growth.

The new 2025 report by the Spanish Productivity and Competitiveness Observatory (OPCE)—a research program developed by the BBVA Foundation and Ivie—analyzes these improvements in Spanish productivity, their impact on economic growth, and differences across sectors and regiones. The study, La productividad en España: condicionantes tecnológicos y empresariales (Productivity in Spain: Technological and Business Determinants), also explores aspects relevant to the trajectory of productivity, such as the adoption of artificial intelligence (AI) and the evolution of business dynamics. The book was directed by Ivie researchers Francisco Pérez, Matilde Mas, Dirk Pilat, and Juan Fernández de Guevara, with contributions from Ivie economists Eva Benages, Juan Carlos Robledo, Consuelo Mínguez, and Ángel García. Once again, the publication of the report is accompanied by an update of the OPCE database, available on the BBVA Foundation website.

According to OPCE’s latest indicators, Spain’s TFP grew by almost 2% in 2024 (the most recent full year available) compared to a -0.7% decline for the European average. Since 2020, TFP has increased at an average annual rate of 1.4%, the highest since 1995, while stagnating at 0% in the Eurozone. However, the authors warn that these productivity gains must be sustained over time to offset past setbacks, such as those during the 1990s and the Great Recession, when heavy investment in unproductive real estate assets during the construction boom revealed structural weaknesses. Spain’s investment pattern in those years was characterized by heavy investment in real estate assets and little accumulation of intangible assets and information and communication technologies (ICT)—key drivers of productivity. In the years leading up to the Great Recession that began in 2008, growth was based on employment and capital accumulation without improvements in productive efficiency. After sharp adjustments, growth resumed in 2014 but was interrupted again in 2020 by the pandemic. Since 2021, Spain has shifted toward a change in its growth pattern, which is now based on the efficiency with which productive factors are employed, while maintaining strong job creation. Between 2021 and 2024, TFP improvements accounted for 33% of GDP growth, and strong job creation—up 11.7% since 2020—contributed 60%. Capital accumulation played a smaller role due to reduced investment, but this decline was offset by productivity improvements. This change in the sources of growth coincides with a rate of increase in Spanish income that is higher than in Europe, moving Spain closer to convergence with the EU-27 in terms of per capita income. “Although we remain below the European average in GDP per capita, we are now growing faster”, the report concludes.

In the post-COVID-19 period, the stagnation of investment at around 20% of GDP has been offset by improved use of accumulated capital and a stronger focus on more productive assets—especially intangible assets such as software, R&D, workforce training in companies, organizational improvements, design, advertising, and data. Over the past four years, most sectors have significantly improved their productivity (TFP). However, aggregate productivity gains are largely driven by market sectors (primarily private companies), while non-market sectors (including education, health, social services, both public and private—real estate, and public administration activities) show minimal improvements. The market economy has shifted from losing efficiency between 1995 and 2020 (at an annual rate of almost -1%) to gaining efficiency at a rate of over 2% in the last four years. In contrast, the non-market economy—in which productivity measurement presents peculiarities, as it is based more on costs than on prices—in terms of productivity, remains stagnant, experiencing slight declines in TFP (its TFP goes from declining at an average rate of -0.17% between 1995 and 2020 to declining at a rate of -0.15% between 2020 and 2024). This stagnation is mainly linked to the poor performance of TFP in health and social services (-1.5%) and education (-1.7%) between 2020 and 2024.

The private sectors that are concentrating the highest productivity gains since the pandemic are: transportation equipment manufacturing (with annual TFP growth of close to 20%), hospitality (13.3%), extractive industries (8.7%), machinery and equipment manufacturing (8.4%), transportation (7.8%), and rubber, plastic, and non-metallic mineral products manufacturing (6.7%). However, despite widespread efficiency improvements, there are some key sectors—some of which are very important due to their weight in the Spanish economy, such as trade, health and social services, education, and construction—where productivity is not improving. These sectors continue to base their growth on the accumulation of factors, especially labor, rather than on efficiency improvements and technological progress.

Regional differences in Spanish productivity

Since the pandemic, all autonomous communities except Extremadura have improved their TFP. Extremadura remains the only region whose productive efficiency stagnated in the first period (1995–2020) and is negative (-0.87%) in the most recent period (2020–2023) and is the only region with a post-COVID-19 decline. In contrast, the rest of the regions have significantly improved their productive efficiency after the pandemic, with the Balearic Islands and the Canary Islands standing out in particular, moving from the most negative TFP rates between 1995 and 2020 to leading improvements—greatly influenced by the effect of the sharp decline in economic activity during the pandemic and the subsequent recovery. In addition to these two regions, the Basque Country, Catalonia, Castile and León, Galicia, and the Valencian Community also stand out for their strong performance since COVID-19.

The report also studies regional growth dynamics when, in addition to traditional capital (machinery, industrial buildings, infrastructure, etc.), the effect of intangible capital (worker training, brand image, design, etc.) on productivity is taken into account. From this perspective, the autonomous communities are classified into four groups, based on labor productivity levels and evolution between 2000 and 2023. First, there are three leading regions: Madrid, Basque Country, and Catalonia. These are followed by a second group of regions that gain positions in labor productivity over the period: Navarre, La Rioja, Galicia, Castile and León, Castile-La Mancha, and Cantabria. In contrast, the Canary Islands, Balearic Islands, Murcia, and Andalusia make up the group that is losing ground, while Aragon, Valencia, Asturias, and Extremadura remain stable.

Regions gaining ground stand out for higher productivity efficiency across both digitized and traditional sectors, while those that are falling in the productivity rankings show weak contributions from all factors. Regional productivity advantages or disadvantages are not explained by sector specialization but by the different productive efficiency achieved by companies in each territory.

International competitiveness

The OPCE 2025 report devotes a section to international competitiveness. Exporting firms boost productivity through specialization in higher-tech activities and their highly productive organizations. However, Spanish goods exports have slowed since 2022, particularly in the automotive sector, while sectors such as chemical and pharmaceutical or food continue to perform well. Service exports—both tourism and non-tourism—remain dynamic, now accounting for 34.3% of total exports, up 2.3 percentage points from 2019. Trade in services is playing a leading role in the most recent stage of globalization and offers Spain significant opportunities—not only as a tourism leader but also because of its presence in other tertiary activities such as ICT services or the export of specialized professional services (e.g., legal advice, engineering consulting).

Spain’s strong orientation toward the European market (59.8% of exports in 2024) has recently acted as a barrier to the impact of weak Asian demand and US protectionism. In this regard, the relatively small share of the US in total Spanish goods exports (4.4%) has limited the effects of the 15% general tariff imposed during the Trump Administration.

Business dynamics

One factor working against aggregate productivity improvements in Spain is weak business dynamics, which have slowed significantly in recent years. The net business creation rate—the difference between the number of businesses created and those exiting the market each year, relative to existing businesses—has been consistently negative since 2008. In 2022, despite the post-pandemic recovery, the net creation rate for businesses with two or more employees stood at -2.9%, lower than in other countries. But what is most concerning is that the indicator has remained negative since the onset of the Great Recession.

The reduction in the net creation rate has affected all sectors, and is mainly driven by micro-enterprises, with some impact from small firms. Positive business dynamics would have a favorable effect on aggregate productivity, as the efficiency of new firms is higher than average, especially since 2008, while that of those leaving is lower. Between 2003 and 2022, companies leaving the market had productivity levels 7% below the average, while new entrants were 4% higher. When the business creation is positive, this productivity gap between entrants and exits translates into improvements in aggregate productivity; but when negative, as in Spain, it slows down efficiency gains. For this reason, the authors recommend removing bureaucratic, administrative, legal, and financial barriers to the entry and exit of companies from the market, as well as facilitating the growth of existing companies, to promote business dynamism.

The report also analyzes the potential of artificial intelligence (AI) as a factor that can boost productivity, noting that companies using AI tend to be more productive. However, for its effects to be seen in aggregate productivity, this new tool needs to be widely disseminated, and its adoption is still low in Spain. AI usage varies across sectors, with high adoption in professional and ICT-related services, but very low in construction, hospitality, and retail.

Currently, 60% of companies using AI do so on an experimental basis or through pilot projects, 34% use it moderately and only 6% use it intensively. These figures indicate that the significant impacts on productivity from AI will take time to materialize. The authors emphasize that the effects of AI on productivity depend on complementary investments, as it requires structural changes within companies and in the economy in general, along with workforce training. “It is unlikely that AI alone can deliver a major boost to productivity, but it should be seen as a tool to increase it,” they note.

In 2024, 11.3% of companies reported using AI—an improvement on the 9.2% recorded in 2023—but still below the European average (13.5%). However, there are significant differences depending on company size: large companies are above the European average in AI use (45% use it), close to leaders such as Finland, Denmark, and the Netherlands, and well above Italy and France. However, the Spanish average is lower than the European average due to limited adoption of AI among small firms.

Rather than focusing on the dissemination of AI already available through acquisition, it is necessary to promote greater internal development of AI by companies, taking advantage of the strengths of the Spanish innovation system and the growing number of AI-native companies, in order to reinforce the expected benefits in productivity. This requires attention to the development of AI-related talent and skills in companies, support for the financing of innovative AI companies, strengthening the AI innovation ecosystem, improvements in the size of Spain’s digital infrastructure, and adapting regulatory and normative environment for AI-related activities. Urgent action is algo needed at EU level to support these national policies, in particular to integrate and expand the European AI market.

In short, to maintain the progress made in productivity and consolidate Spain’s shift in the economic growth model, Spain needs a strategic productivity agenda aimed at strengthening investment in tangible and intangible assets, particularly workforce skills, and promoting business dynamism to boost the creation of more productive companies.

Finally, although AI offers great potential, it is not risk-free. Therefore, all levels of government—central, regional, and local—must play an active role in ensuring that AI contributes to productivity improvements and the overall well-being of Spanish society.