Spain has recently exited a deep recession triggered by the global crisis. Growth is nevertheless expected to remain subdued as the economy still needs to correct part of the private sector imbalances built-up prior to the crisis despite a prudent macro-fiscal policy. Strong growth of private sector indebtedness, which reflected strong business investment as well as the overdevelopment of the residential construction industry, has led to a sizeable current account deficit, whose correction is underway. Rebalancing the Spanish economy and boosting potential growth will require full-fledged reforms, especially in labour and product markets. In particular, fostering competition in the service sector further could help reduce prices and improve competitiveness. Housing policies have advanced considerably in eliminating tax distortions in favour of housing ownership and removing barriers to the rental market, which can help support labour market adjustment and make a contribution to the absorption of the empty housing stock. However, the authorities should refrain from expanding the stock of social housing and favour instead means-tested benefits. Restructuring and reform of the savings banks has improved their resilience, although the role of regional governments in the savings banks’ management should be further reduced.