How Spain’s Economy Came to Be the Envy of Europe

In 2024, Spain welcomed a record 94 million visitors, positioning itself alongside France—who saw 100 million—as a leading global tourist destination. This surge in tourism, a key driver of Spain’s post-Covid recovery, has significantly contributed to the country’s robust economic performance, with a 3.2% GDP growth last year. In comparison, major European economies like Germany, France, Italy, and the UK grew at slower rates or even contracted, with Germany shrinking by 0.2% and France expanding by just 1.1%.

This economic growth has led The Economist to rank Spain as the world’s best-performing economy. According to Carlos Cuerpo, Spain’s business minister, the country’s success lies in its balanced economic model, which ensures sustainable growth. He points out that Spain was responsible for 40% of the eurozone’s growth last year. While tourism plays a significant role, Cuerpo also highlights the importance of financial services, technology, and investment as factors fueling Spain’s recovery after a sharp 11% GDP contraction during the pandemic.

Aiding this recovery are funds from the EU’s Next Generation program, which Spain plans to invest in key sectors like the national rail system, electric vehicles, and small business subsidies. Public spending has driven much of the growth, contributing to about half of the post-pandemic economic expansion.

Spain’s economic performance contrasts with other major European economies, where reliance on industries like manufacturing has slowed growth. Spain, however, has benefited from lower energy costs, government subsidies, and the ability to negotiate favorable energy agreements with the EU, which helped mitigate the impact of the Russian invasion of Ukraine and the resulting energy crisis.

Spain’s green energy sector is another asset. As the second-largest renewable energy producer in the EU, Spain is leveraging its renewable infrastructure to attract investment, especially in electric vehicles. Although Spain’s electric vehicle production lags behind the rest of Europe, Wayne Griffiths, CEO of Seat and Cupra, sees great potential in this area, pointing to Spain’s competitive workforce and supportive energy policies.

One ongoing challenge for Spain has been its high unemployment rate, the highest in the EU. However, Spain has seen improvements, with unemployment dropping to 10.6% by the end of 2024, the lowest level since 2008. A labor reform favoring permanent contracts has helped reduce temporary employment without hindering job creation.

Immigration has sparked political debates but is increasingly seen as essential to Spain’s economic future, given its aging population. Prime Minister Pedro Sánchez has emphasized the critical role of immigrants in sustaining economic growth.

Looking ahead, Spain faces some challenges, such as its reliance on tourism, growing local opposition to the industry, and a high public debt. Economic experts warn that Spain’s debt—which exceeds the country’s annual GDP—could pose risks to financial stability. Additionally, Spain is grappling with a housing crisis that leaves millions unable to find affordable accommodation. Despite these challenges, Spain remains a key driver of European growth, though the political landscape may complicate efforts to address its issues.