The productive capacity of Spain’s economy per working hour and per invested capital has declined by 7.3% so far this century, widening the efficiency gap with peers. Countries that advanced during the same period include the United States (+15.5%), Germany (+11.8%), the United Kingdom (+8.8%), and France (+0.8%). Spain, along with Italy, also faced a fall in the productivity of both its workforce and its capital, with a delay of -5.1% in the same period, according to data compiled in the first report published by the Observatory of Productivity and Competitiveness in Spain (OPCE), the BBVA Foundation, and the Valencian Institute for Economic Research (Ivie).
The study, released this Friday, highlights a stubborn lack of progress. The total factor productivity (TFP), which represents the combined effect of multiple productivity drivers, has slowed growth in GDP per capita, and the gap in productivity among nations with rising productivity levels continues to widen. Consequently, the disparity in income per capita between Spain and the European Union grew from 2.4% in 2000 to 14.4% in 2022.
“Spain remains below the EU average on this indicator,” states the report directed by researchers Francisco Pérez, Matilde Mas, Dirk Pilat, and Juan Fernández de Guevara. The analysis notes that firms use existing business capital—machinery, equipment, real estate assets, and infrastructure—to generate value-added.
In summary, the evolution of productivity reflects inefficient resource use. The report argues that Spain’s international competitiveness is hampered when segments of the production system underperform, causing slower improvements and undermining cost-based advantages and welfare gains.
Four phases since 2000
Over the 22 years covered by the analysis, OPCE identifies at least four phases. The first stage, from 2000 to 2013, shows no substantial productivity growth as the financial crisis hit and the country was left with a glut of unsold homes, vacant offices, and other unproductive assets.
In the second phase, roughly 2013 to 2019, productivity grew about 1.2%, signaling a small shift in development, though the pace remained modest.
Then the pandemic disrupted this revival, with the index falling sharply by 5.1% in 2021, reflecting the health crisis’s impact on housing, transport, entertainment, and culture, all of which weighed heavily on the Spanish economy.
After the pandemic, the indicator rose again, posting a cumulative increase of 2.8%. From 2021 to 2022, growth stood at about 1.4 percentage points per year, signaling a faster recovery as noted by the BBVA Foundation and Ivie.
Slow business progress and capital decline
The combination of these four phases results in a 7.3% drop in total factor productivity. OPCE attributes this to a mix of sluggish productivity growth per hour worked and a steep decline in the capital stock.
Labor productivity—defined as GDP divided by hours worked—grew at an average annual rate of 0.7% since the turn of the century, a pace below the EU average of 1.1% and well under the United States at 1.4%.
Meanwhile, capital efficiency—the value added per unit of existing capital, including machinery, equipment, real estate, and public and private infrastructure—fell by about 1.2% per year on average between 2000 and 2022, as investment gains did not translate into proportional value creation.
Reasons
Ivie economists explain that several factors contribute to weak productivity per hour in Spain. These include lower educational outcomes, higher rates of temporary employment, and fewer workers in higher-skilled sectors, which have a heavier weight in other developed economies. The prevalence of non-professionalized management models in many firms also limits labor productivity.
Beyond these factors, weak productivity is linked to real estate holdings that tie up capital and to insufficient investment in intangible assets such as research and development, software, data systems, design, brand building, and workforce training. Spain’s current share of investment in intangible assets—about 9.5% of GDP—is roughly half the levels seen in the UK, Finland, the United States, France, and Sweden. Although there is a positive trend, the gap remains clear.
Additionally, the country is still digesting the long shadow of the 2008 real estate collapse. Real estate assets tend to be durable and can sit idle for years, generating ongoing depreciation and financial costs for owners and households that hold these assets.
Answers
OPCE emphasizes five direct levers to address the productivity problem in the Spanish economy: higher productive investment, stronger human capital, greater innovation and intangible assets, digitalization, and more dynamic corporate performance.
Beyond these direct levers, the report calls for indirect measures to boost efficiency, including policies that promote international trade, attract foreign investment, enhance regulatory and competition environments, reform the labor market, and support industrial and regional policy development.
Observers note that Spain, along with Italy and Estonia, remains among the eurozone countries that have not fully complied with the European Commission’s 2016 recommendation to set up National Productivity Councils to tackle these issues.