Spain’s Economic Surge
Spain’s robust economic performance is surpassing that of its European counterparts, driven by the contributions of tourism, foreign investment, and immigration to overall growth. The southern European country continues to spearhead growth within the euro zone, with an annual gross domestic product projected to increase by 2.5% this year. In contrast, the economies of France, Germany, and Italy are anticipated to grow by 0.6%, remain stagnant at 0%, and expand by 0.7%, respectively. Spain’s GDP exceeded projections in the second quarter, expanding by 0.7%, which is higher than the forecast of 0.6%. The growth exceeded that of the preceding three months, which stood at 0.6%, according to data from the Spanish National Statistics Institute (INE).
Investment and consumption serve as the primary catalysts for this growth, alongside a flourishing tourism sector. “Spain is a significant outlier at present regarding growth. “It’s also a great place to invest,” stated Spain’s Finance Minister Carlos Cuerpo in an interview. “For the second year in a row, we will be the advanced economy number one in terms of GDP growth. Spain is a significant outlier at present regarding growth. “It’s also a great place to invest,” he added. The prosperity of Spain’s economy is contingent upon elevated levels of consumption and investment, alongside the contributions of tourism, Next Generation European funds, and immigration.
“It’s not just tourism; it encompasses non-tourism services as well.” Our exports in services, particularly in sectors such as IT, accountability services, and financial services, have surpassed those in tourism, amounting to 100 billion euros compared to 94.95 billion euros in tourism. “So that’s an element of modernization of the Spanish economy,” said Cuerpo. Despite this economic growth, several challenges await Spain, including maintaining wages in accordance with the increasing cost of living, addressing climate change, navigating a more fragmented political landscape, and contending with the reality that the country has the highest youth employment rate in the EU. “What is going to happen with tariffs and international trade, especially in an economy like Spain, where exports of goods have increased considerably over the last 15 years?” said Cardoso. The second challenge is that the savings rates remain relatively high. A third factor is the prevailing low investment rates. And finally, how to reduce the government deficit and public debt.
Tourism in Spain continues to account for approximately 12% of the nation’s GDP, capitalizing on the recovery from the pandemic and the relatively lower prices in comparison to other Western European countries. The sector’s success has elicited a response from local communities regarding the increased number of visitors to historic and popular sites, especially during the peak summer months. In June of the previous year, demonstrators in Barcelona engaged in the act of spraying water guns at travelers while vociferously proclaiming, “tourists go home.” The sector is poised to benefit from its expanding workforce, which is projected to reach nearly 3 million individuals by 2024, reflecting a growth rate of 9.7% relative to 2023.
High immigration also supports job creation. In contrast to the trend observed in other European nations that are tightening border controls, Spain is set to embrace an influx of nearly a million migrants over the forthcoming three years. This initiative will be facilitated through work visa programs and the provision of residence permits to individuals currently undocumented in the country. “90% of the increase in the labour force since 2021 comes from immigration,” stated BBVA Research’s Chief Economist Miguel Cardoso. “This is facilitating the growth of the service sector. This situation is maintaining a degree of competitiveness among firms regarding the management of rising labor costs, thereby enabling, for instance, service prices to stay relatively stable despite a high inflationary context.
Last year, the majority of migrants to Spain originated from Colombia, Venezuela, and Morocco. “Latin American economies, some of them are not performing relatively well, so there is this push factor. “There is also the fact that immigration to the United States has become more difficult, and therefore people are turning around and seeing alternatives,” added Cardoso. Spain’s economy has been strengthened by the European Union’s Next Generation EU funds, which have made 163 billion euros accessible to Spain through grants and loans. The nation ranks as the second largest recipient of pandemic recovery assistance, trailing only Italy. Spain’s Cuerpo informed that 70% of the grants, amounting to 55 billion euros, have already been allocated.
“This was a program that was designed in part to try to help with the recovery after the pandemic,” stated Cardoso. “The government has focused on investment projects for which they already hadspain established plans, resulting in a relatively low multiplier effect on the economy.” Nonetheless, the Spanish government intends to allocate these funds towards sectors such as non-tourism services exports, including renewables. Since the early 2000s, Spain’s investment in green energy has resulted in reduced energy costs and a mitigated impact from the European energy crisis that ensued following Russia’s invasion of Ukraine in 2022.
“The increase in the renewable share in the electricity mix over the past five, six years has implied a drop of 40% in wholesale electricity prices,” Cuerpo stated. Low production costs serve as a compelling factor for firms, especially foreign investors, who additionally contribute to the sector. Arctech, a photovoltaics tracker company established in China in 2009, inaugurated its European headquarters in Madrid in 2024. Photovoltaic cells facilitate the direct conversion of sunlight into electricity. It represents a rapidly expanding sector in the renewable energy landscape, with the potential to drive down electricity expenditures. “Spain is probably the location in Europe where the most PV has been done,” stated Arctech’s EU and NA Markets General Manager Pedro Magalhaes. “The solar ecosystem is indeed established in Spain, encompassing everyone from junior engineers to the funds investing in substantial assets.” The company currently operates 17 branches beyond China and is strategizing for expansion into Eastern Europe, alongside intentions to diversify into storage solutions. “Things are occurring in this context. We use the port of Valencia to import and distribute to many locations in Europe,” Magalhaes added. Similar to Arctech, numerous foreign enterprises are strategizing to capitalize on the nation’s low energy expenses.
Stellantis, a major player in the automotive industry, has partnered with battery manufacturer CATL, revealing intentions to establish a $4.3 billion lithium iron phosphate battery facility in Zaragoza, located in northeastern Spain, by the end of 2024. Spain exhibits robust foreign direct investment, positioning itself as the fourth most appealing destination for investors within the EU. China has announced plans to invest up to 11 billion euros in Spain by 2025, positioning itself for a significant expansion with 33 new projects in the country. “When you look at where that investment originates, the largest investor in Spain is U.S.,” said Cuerpo. “However, we are simultaneously drawing investment from various global regions, including China, particularly in sectors associated with renewables and sustainable mobility. This, of course, remains an integral component of our economic security strategy.”
