When growth is not enough: housing and inflation, Sanchez's main challenges before elections
Spain's economy is still growing faster than the eurozone and employment is at its highest since 2008, but Sánchez's term ends amid inflation, weak productivity and a housing crisis dominating the election debate.
The president of the Spanish government, Pedro Sánchez, will face the early elections scheduled for 29 November in the hope that the strong economic figures that have defined much of his term will help him counter a widespread feeling across the country: macro growth is not enough.
Spain's gross domestic product (GDP) rose by 2.8% in 2025 and is forecast to continue expanding at a relatively brisk pace, with growth of 2.4% expected for 2026, according to the European Commission's country report (source in Spanish). Since the pandemic, moreover, Spain has grown faster than the main economies of the euro area.
However, as the protests over the housing crisis that the country has been experiencing for weeks make clear, that growth has not translated into a better quality of life for Spaniards. The Commission attributes part of this to a sharp increase in the population, driven by migration flows, but also to weak labour productivity.
Output per hour worked has improved since 2019, but productivity per employee and per full-time worker has remained virtually flat. This is one of the main reasons why aggregate growth is not feeding through to the same extent into income per capita in a Spain that Sánchez has governed since June 2018.
Immigration has in fact become one of the engines of the Spanish labour market. Although employment grew by 2.6% in 2025, jobs filled by people born abroad accounted for 7.9% of all the positions created that year.
The latest consolidated data nevertheless show that the labour market still has a strongly seasonal pattern. In August, the number of unemployed people rose by 44,419, to 2,355,918, although this was the lowest figure recorded for that month since 2007. In September, the jobless total increased again, by 23,587 people, a number which likewise marks a low for that month since 2007.
The main driver of Spain's growth has been the services sector, and tourism in particular. Spain received 58.1 million international tourists between January and July 2026, an unprecedented number and 4.6% more than a year earlier. Tourist spending rose by 7.8%, reaching a record 82.054 billion euros, according to Frontur and Egatur data published (source in Spanish) by the National Statistics Institute (INE).
The European Commission notes that the increase in exported services has helped widen the current-account surplus and improve the country's net international investment position. But it also warns that a large share of activity is still concentrated in sectors with relatively low productivity, such as agriculture. More than 82% of the jobs created were in low-productivity activities, limiting the potential for wage growth.
Inflation is adding further pressure. In September, year-on-year inflation stood at 5%, well above the 3.8% average recorded in the eurozone and only behind Lithuania (6.1%), Bulgaria (5.6%), Cyprus and Luxembourg (5.2%) and Greece (5.1%).
In September, inflation in Spain reached 4.9%. The INE mainly attributed this spike to more expensive fuel and to the evolution of package holiday prices.
Housing, the big problem
If there is one issue that encapsulates the gap between economic growth and quality of life, it is housing. In this area, Spain faces a serious mismatch between supply and demand, both for buying and for renting, especially in large cities and tourist areas.
"The severe housing deprivation rate increased, indicating poor living conditions", the Commission's country report notes. Social housing accounts for barely between 1.5% and 1.7% of the total housing stock, compared with an average of between 6% and 7% in the European Union.
Prices have also been rising steadily since 2014 and have accelerated in recent years, while high housing costs are also acting as a drag on labour mobility.
It is precisely at this point that economics and politics collided on Monday. After the government failed last week to get two housing decrees ratified because it lacked the support of its partners in Congress, Prime Minister Sánchez dissolved parliament and called elections for November.
For now, then, Sánchez's record in office presents two sides: one in which Spain is growing, creating jobs and benefiting from the arrival of foreign workers and the strength of the tourism sector; and another that rising GDP alone cannot fix, weighed down by low productivity, the erosion of purchasing power and the difficulty of accessing housing.
