Valencian Economy Sees Productivity Gains, But Challenges Remain
For decades, productivity has been a persistent weakness in the Valencian Community’s economy. The region consistently lagged behind the Spanish average adn trailed economically leading territories like the Basque Country, Madrid, and Catalonia. Tho, recent data suggests a turning point, with the Valencian Community demonstrating growth above the national average as the pandemic.This positive trend is highlighted in the latest report from the Spanish Observatory of Productivity and Competitiveness (OPCE) for the first half of 2025, a joint initiative by the BBVA Foundation and the Valencian Institute of Economic Research (Ivie).
Beyond Traditional Metrics: Total Factor Productivity
The OPCE report moves beyond traditional measures of productivity, such as output per hour worked, to analyze the efficiency of all resources – a metric known as Total Factor Productivity (TFP). This broader outlook reveals that the Valencian Community has experienced an annual TFP growth rate of 1.48% since 2020, surpassing the Spanish average of 1.21%. This growth momentum has even positioned the region favorably compared to historically stronger economies like madrid and Navarre.
While most autonomous communities in Spain have seen productivity improvements, Extremadura remains an exception. The Balearic and Canary Islands lead the way,benefiting from a rebound after being especially hard hit during the initial stages of the pandemic. Following closely are the Basque Country, catalonia, Castile and León, galicia, and the Valencian Community.
Still Room for Betterment: Hourly Productivity Lags
Despite the encouraging gains in TFP, the Valencian Community still ranks fifth from the bottom in terms of productivity per hour worked. This indicates that while the region is becoming more efficient in its use of resources,it hasn’t yet closed the gap in output generated per hour of labor. However, the report highlights positive contributions from capital investment in traditional sectors and a high level of digitalization as key drivers of improvement.
Notably, the Valencian Community is emerging as a leader in the adoption of Artificial Intelligence (AI), a factor that is expected to play a crucial role in future productivity gains. This proactive embrace of new technologies positions the region for continued growth and competitiveness.
Sectoral Differences: A Mixed Picture
the OPCE study also reveals significant variations in productivity improvements across different sectors of the Spanish economy. A clear distinction exists between “market sectors” – primarily private companies – and “non-market sectors,” which include public services like education, healthcare, social services, real estate, and public governance. While market sectors have generally experienced productivity gains, the non-market sectors have seen limited improvement.
Within the private sector,the manufacturing of transport materials has seen the most significant gains,with an annual growth rate approaching 20%. The hospitality industry (13.3%), extractive industries (8.7%), and the manufacturing of machinery and equipment (8.4%) also demonstrated strong productivity increases.
Conversely, sectors like commerce, healthcare, social services, education, and construction have not shown positive productivity trends. This suggests that targeted interventions and reforms might potentially be needed to unlock productivity potential in thes crucial areas of the economy.
Looking Ahead: Growth Forecasts and Key Considerations
Recent economic forecasts paint a positive outlook for the Valencian Community. BBVA Research projects a GDP growth of 3.6% in 2025 and 2.9% in 2026, positioning the region as a growth leader [2]. Though, this growth is contingent on factors such as economic and trade policy uncertainty and the pace of recovery in europe.
Furthermore,Funcas estimates a more moderate growth of 2.7% for 2025 and 1.8% for 2026, still below the national average [3]. BBVA Research also notes that the effectiveness of government aid – in terms of timing, amount, and purpose – will be critical in maximizing growth potential in 2025 [1].
The Valencian Community’s recent productivity gains represent a significant step forward,but sustained growth requires continued investment in innovation,digitalization,and strategic reforms to address the challenges in key sectors. The region’s commitment to AI adoption and its focus on improving resource efficiency will be crucial in securing a prosperous economic future.
