Robust demand and hiring lift activity at year’s end, cushioning industrial weakness as price pressures linger

Spain’s services sector finished 2025 with a burst of momentum that underscored its role as the backbone of the country’s economy. Business surveys released at the turn of the year pointed to the fastest expansion of service activity in the closing month, driven by firmer sales, resilient domestic demand, and renewed hiring. The performance helped counterbalance a softer manufacturing backdrop, offering reassurance that growth remained broadly anchored even as cost pressures persisted.

Executives across hospitality, transport, professional services and consumer-facing businesses reported a noticeable improvement in trading conditions as the year drew to a close. New business flows strengthened, reflecting steady household spending and a continued recovery in tourism-related services. Companies said that demand was not only higher than earlier in the year, but also more evenly spread across regions and subsectors, suggesting a durable rather than fleeting upswing.

Employment trends reinforced that message. Service providers added staff at a quicker pace, citing busier order books and a desire to secure talent after years of tight labor markets. Hiring was particularly evident in travel, leisure, and business services linked to digital transformation and consulting. While firms remained cautious about productivity and training costs, many signaled confidence that workloads would justify larger payrolls in the months ahead.

The strong showing in services contrasted with ongoing challenges in manufacturing. Industrial firms continued to grapple with weaker external demand, inventory adjustments, and uncertainty in key export markets. That divergence has become a defining feature of Spain’s post-pandemic economy, with services absorbing shocks that might otherwise have weighed more heavily on overall growth. Economists say the balance between the two sectors has so far prevented a sharper slowdown.

Inflation, however, remains a central concern. Input costs for service companies continued to rise, particularly in wages, energy, and certain imported inputs. Many businesses reported passing part of those increases on to customers through higher prices, though competitive pressures limited the extent of price hikes in some segments. As a result, selling prices rose at a moderate but persistent pace, keeping inflation firmly on policymakers’ radar.

Despite those pressures, sentiment within the sector improved. Business confidence surveys showed optimism edging higher, with firms expecting demand to hold up into the new year. Investment intentions also picked up, especially in technology, sustainability initiatives, and capacity upgrades aimed at improving efficiency. Several executives noted that digital tools and data-driven operations were becoming essential to protect margins in an environment of elevated costs.

Tourism remained a pillar of strength. International arrivals and domestic travel supported hotels, restaurants, transport operators and cultural services, extending a recovery that began earlier in the year. The sector benefited from Spain’s diversified offer, ranging from urban tourism to coastal and rural destinations, which helped smooth seasonal fluctuations and broaden revenue streams.

At the same time, business services linked to finance, legal advice, engineering and IT continued to expand. Demand from corporations seeking to modernize operations and comply with evolving regulations provided a steady pipeline of work. These segments, less exposed to short-term swings in consumer confidence, added stability to the overall services landscape.

Policy watchers note that the resilience of services gives authorities some breathing room as they navigate the trade-off between supporting growth and containing inflation. Stronger activity and employment improve fiscal revenues and household incomes, but persistent price pressures could complicate monetary conditions. Much will depend on whether cost increases ease and whether productivity gains materialize from ongoing investment.

Looking ahead, analysts expect services to remain the main engine of Spain’s economy, albeit with risks. Any renewed weakness in Europe’s broader economy could weigh on tourism and business demand, while tighter financial conditions might restrain investment. Still, the sector’s performance at the end of 2025 suggests a capacity to adapt and absorb shocks.

As the new year begins, Spain’s service providers enter with momentum and cautious optimism. Stronger sales, expanding payrolls and healthier order books have helped close 2025 on a positive note, offering a counterweight to industrial softness and a signal that, for now, the country’s growth story remains firmly service-led.