The Spanish economy continues its strong growth, thanks to past structural reforms, robust employment growth and accommodative macroeconomic policies. However, the legacy of the crisis has not yet been fully overcome and imbalances remain. The robust recovery provides an opportunity to keep reducing macroeconomic and financial vulnerabilities, such as high public and external debt. The resilience of public finances should be increased to address medium-term challenges, including spending pressures from demographic changes. Income inequality is high and displays regional differences in Spain. More effective use of taxes and transfers, bringing people back into employment and reducing regional disparities would make growth more inclusive. Improving productivity growth, which remains subdued, will require firms to be more exposed to competition and innovation. Policies to improve education and skills will deliver results not only in terms of productivity growth, but also better employment prospects and wages. Spain is a highly decentralised country, making the effective implementation of national reforms dependent on regional policies. More effective coordination and cooperation across different levels of government are needed to improve the effectiveness of policies.

SPECIAL FEATURE: REDUCING REGIONAL DISPARITIES