Spain’s performance has remained remarkably strong thanks to the structural reforms implemented since the mid-1990s and the sound macroeconomic policy framework. Employment has expanded strongly, enabling the economy to grow more rapidly than the euro area average, even during the recent slowdown. To sustain this strong performance over the medium term, it is necessary to continue the reform process. First, the persistent inflation differential with the euro area is worrying as it erodes competitiveness progressively and could lead to a period of slower growth. This inflation differential, which is partly the consequence of exceptional factors, highlights the need for continuing labour market reforms, and for strengthening competition in certain sectors. Additional reforms in these areas would also help in bringing down unemployment, which is mainly structural and, in spite of its considerable reduction, remains among the highest in the OECD. Second, productivity gains have remained small, partly as a consequence of positive effects of strong employment growth. Accelerating real convergence requires removing the obstacles to the development of higher value added activities, promoting the improvement of human capital, reducing the innovation gap and stepping up the slow diffusion of new technologies. Third, a reform of the real estate market is desirable, to raise labour mobility, to improve resource allocation and to prevent the risk of a speculative bubble from developing. Last, reforms are needed to prepare against the consequences of ageing. They should be phased in now to ensure the sustainability of the public finances, which will be under threat from sharply rising spending on pensions and medical and social services as from 2020-25.