Spain: Selected Issues
IMF Staff Country Reports, June 6, 2025
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Bibliographic details
- Published: June 6, 2025
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798229012645.002
Summary of main findings
- The paper assesses the sluggish recovery and post-pandemic investment in Spain.
- The investment recovery has been weak across all components, with particular weakness in transport equipment and other construction.
- Investment has been lagging euro area peers and has remained below levels implied by its historical drivers, narrowing the gap with these fundamentals only in recent quarters.
- Elevated economic policy uncertainty is identified as a drag on investment.
- Firm-level data indicate a weaker investment response to profitability among:
- small firms, which make up a large share of the Spanish economy; and
- younger to middle-aged firms, which are key drivers of growth.
- The weaker investment response hints at a potential role of uncertainty or other factors reducing firms’ willingness to invest, even when financial capacity is available.
- For younger and middle-aged firms specifically, financial constraints during the pandemic—captured by high leverage—are found to have been a constraint.
Analysis and interpretation
- The shortfall in investment relative to historical determinants has only narrowed recently, implying a persistent gap that is not yet fully explained by standard fundamentals.
- Heterogeneity across firm size and firm age is important: small firms and younger/middle-aged firms show attenuated investment responses to profitability compared to other large euro area economies.
- Elevated domestic policy uncertainty emerges as a broad macro factor that has negatively affected investment decisions.
- Financial constraints (high leverage) played a specific role for younger and middle-aged firms during the pandemic, suggesting that access to financing remains a channel through which investment has been held back.
Policy recommendations
- Reduce domestic policy uncertainty to help restore firms’ willingness to invest.
- Improve financing conditions for constrained firms, with a focus on younger and middle-aged firms facing high leverage.
- Address structural barriers to investment to unlock a more sustained and broad-based investment recovery.
Content in this bundle
- Spain: Selected Issues; IMF Country Report No. 25/122; May 16, 2025