JPM Spain s potential growth

Mariana Monteiro ( Europe Economic Research JPMORGAN m 17 September 2026 J.P. Morgan Securities plc

Spain's potential growth still A transformed labour market structurally stronger Potential labour input measures how much labour can sustain- ably contribute to economic growth. It depends on four fac- tors: the size of the working-age population, trends in labour • Potential growth has more than doubled force participation, structural unemployment and average • Labour supply explains most of the increase; underly- hours worked. Potential labour input has grown by around 2% ing productivity may also be improving per year since 2022 (Figure 2) and now accounts for roughly • Spain should retain a structural growth advantage half of Spain's potential growth. This marks a sharp reversal despite some moderation in coming years from the pre-pandemic period, when labour input was a mod- est drag on growth. The main reason is exceptionally strong Spain's recent outperformance reflects more than cyclical fac- immigration, which has more than offset the aging of Spain's tors. Our estimates suggest potential growth has risen from native population (orange bars in Figure 2). Indeed, the for- around 1% before the pandemic to roughly 2.5% today (Fig- eign-born population aged 15-74 is still growing at an ~5.5% ure 1), well above our 1% Euro area estimate.1 The sharp rise annual rate, despite inflows moderating from their post-pan- in labour input driven by exceptional immigration is the main demic peak (Figure 3). reason for this improvement, though underlying productivity trends may also have become more supportive. Figure 2: Potential labour input as total hours worked %oya, %-pt contribution Looking ahead, Spain's growth outperformance is likely to 4.0 Avg. working hours p. employed person NAWRU Projection narrow as fiscal consolidation gains traction, immigration 3.0 Part. rate slows, and cyclical momentum improves elsewhere in the National WAP* Euro area. Nevertheless, we expect Spain to retain a meaning- 2.0 Foreign-born WAP* ful structural growth advantage. Potential growth is projected 1.0 to moderate gradually, but remain at around 2% by 2028, well 0.0 above the pace seen after the debt crisis. This reflects a gradu- -1.0 al normalisation in immigration rather than a reversal, along- -2.0 side resilient capital accumulation and durability in recent improvements in underlying productivity. Uncertainty around *WAP = working age population (15-74); Source: J.P. Morgan this outlook is elevated, especially because it remains inher- ently difficult to forecast immigration, which will depend not Figure 3: Working population aged 15-74 only on economic conditions but also on future policy deci- %oya %oya Total sions. 2.0 25 Born in Spain Foreign-born 1.5 20 Figure 1: Spain potential GDP 1.0 15 %oya, %-pt contribution Projection Source: Eurostat, J.P. Morgan

-0.5 Trend TFP Labour Capital However, the improvement in labour input reflects more than -1.5 just population growth. Underlying labour market trends have Source: European Commission, J.P. Morgan also become more supportive of potential growth (Figure 4). After declining for much of the post-financial-crisis period, labour force participation has resumed its gradual upward 1. Potential output is not directly observable and needs to be trend. Meanwhile, while remaining elevated by EU standards, estimated. Various approaches are available. In this note, we use a Spain's structural unemployment rate (NAWRU) has contin- standard Cobb-Douglas production function with constant returns to ued to decline. Together, these developments have partly off- scale. The approach decomposes potential output into labour, capital set the drag from declining hours worked per employed adult and total factor productivity. We assume the elasticity of capital to — which has also declined at a more modest pace relative to be 0.35 and labour 0.65. For more details on estimation pre-pandemic years. Strong immigration may have partly methodology, contact the team.

Mariana Monteiro ( Europe Economic Research JPMORGAN Spain's potential growth still m structurally stronger J.P. Morgan Securities plc 17 September 2026

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