Why Spain’s Economic Boom Leaves the Rest of Europe in the Dust

By Heiner Burkard

Ranked as the best-performing economy in the world, in recent years, Spain’s economic growth was unmatched in Europe. Even though it is undergoing the same crises as its European neighbours, its economy is on a winning streak. The liberal policies on immigration, its decisive stance regarding the energy transformation, and overall modernisation led Spain to become a European powerhouse and policy leader.

Europe’s economies are always considered to follow a specific pattern. The north is rich, and the south is poor and lacks the industrial power to become an economic powerhouse. But this is not actually true, and Europe’s economies were always changing and adapting. In the 1990s and early 2000s, Germany was seen as the "sick man of Europe". Its economy stagnated, reforms were slow and insufficient, and the sentiment among its people was pessimistic. But the wind changed, and Germany experienced an economic boom in the 2010s. Exports to all corners of the world and a status as engineering champions, with “Made in Germany” being a guarantee for quality and excellent craftsmanship, transformed the sick man into the economic superstar of the Eurozone. After this glorious boom that made Germany the largest economy in Europe and the third largest in the world, it experienced many crises, starting with the COVID-19 pandemic in 2020. Like many European economies, Germany experienced persistent hardship through the pandemic, as the lockdowns stopped the entire global trade on which its economy heavily relies. This was then followed by an energy crisis due to Russia’s full-scale invasion of Ukraine, as Europe cut all economic ties with the aggressor. Today, geopolitical uncertainty, supply chain disruptions, and a looming trade war are fueling a global recession that is felt deeply in all European economies. Germany’s economy almost stagnated with a growth of 0.2 per cent in 2025, while Italy and France performed only slightly better with 0.5 per cent and 0.8 per cent growth, respectively.

All of Europe? No! One economy still holds out against the recession

Among the EU’s Big Four economies, there is one clear outlier. While Italy, Germany, and France struggle to generate any meaningful growth prospects, Spain recorded the highest real GDP growth at 2.8 per cent. This was not a one-off effect. Already in 2024, Spain grew its GDP by 3.2 per cent, while Germany’s even decreased by 0.2 per cent, Italy’s grew only by 0.5 per cent, and France’s by 1.1 per cent. That year, Spain alone was responsible for 40 per cent of the Eurozone’s growth. 

Because of this, The Economist chose Spain as the best economy in the world for 2024. Years ago, Spain was synonymous with economic failure. Its government and banks appeared to be in a financial downward spiral and depended on bailouts. Young people left for northern European countries for better career prospects. Today, this seems out of a distant, long-forgotten era.

On the surface, the tourism expansion post-COVID is a major driver of the growth. In 2024, Spain welcomed 94 million tourists, ranking second only to France and catching up. But its rise cannot only be explained by a recovery of its tourism industry after the pandemic. “The Spanish model is successful because it is a balanced model, and this is what guarantees the sustainability of growth”, says Carlos Cuerpo, the business minister of the socialist-led government, in an interview with the BBC. While its GDP dropped by eleven per cent in one year during COVID, Spain’s economy still could recover without scars, while modernising and thus lifting the potential GDP growth. Although the tourism industry still bears a significant importance for its entire economy, financial services, technology, and investments have helped its growth model. This recovery is facilitated by the EU’s Next Generation funds, of which Spain is the biggest recipient alongside Italy, receiving 163 billion euros by the end of this year. These funds are mainly invested in sustainable infrastructure such as railways, low-emission zones in its cities, as well as its electric vehicle industry and subsidies for small businesses. In fact, public spending is responsible for roughly half of Spain’s economic growth since the pandemic. The Spanish government, led by Prime Minister Pedro Sánchez from the Spanish Socialist Workers’ Party, profits from a lower reliance on the industrial sector compared to its European peers. As the energy crisis skyrocketed, the cost of energy all over Europe, highly industrialised economies such as Germany suffered far more. The introduction of subsidies, cutting the cost of fuel, encouraging the use of public transport, as well as several increases in the minimum wage, were key in mitigating the effects on the cost of living. Further, the Iberian countries, Portugal and Spain, negotiated an “Iberian exception” with the EU. This exception allowed them to cap the price of gas used to generate electricity. These measures proved Spain more resilient to the inflation shock stemming from the war in Ukraine.

Aside from reducing the cost of electricity generation from fossil fuels, Spain’s green energy output increased significantly, which keeps its consumers’ energy bills low. Since 2019, Spain has doubled its wind and solar capacity, which is more than any other EU country except Germany, whose power market is twice the size of Spain’s. As a result, Spain’s electricity prices are much less vulnerable to the fluctuating prices of fossil fuels. This proves very beneficial in a time of unstable supply chains and geopolitical tensions, where energy is used as a weapon. Once again, resilience against fossil fuel prices is advantageous during the current Iran conflict and the blockage of the Strait of Hormuz. As a result, Spain’s energy bills are among the lowest in Europe, and the government’s pivot to renewables has been a big win for households and the competitive position of the entire economy.

Even though a longstanding weakness was low employment rates, which were still the lowest in the EU in 2024, the situation improved, and unemployment is at its lowest since 2008. With 22 million people employed, Spain recorded a new record. A key reason for this is the introduction of a labour reform increasing restrictions on temporary contracts, and thus reducing the number of workers in temporary employment. Moreover, the economic performance and public services are sustained by a liberal immigration policy that legalised 500,000 undocumented migrants and allowed them to be integrated into the workforce as Spain’s population is rapidly ageing. Prime Minister Sánchez underlined the critical need for immigrants and described their contribution to the economy as fundamental. 

Looking ahead

The European Commission forecasts that Spain will continue to lead economic growth among the Union’s big four economies. While it is predicted to remain ahead of the EU’s average, challenges lie ahead. The country still heavily relies on its tourism sector, while it faces broad backlash from locals who are priced out of the cities and tourism hubs. This goes hand in hand with a housing crisis that left millions of Spaniards struggling to afford housing. Additionally, Spain’s vast public debt may become an overwhelming burden as it is already higher than the country’s annual economic output. With these challenges and a deeply polarised political landscape, the minority government of Pedro Sánchez faces a decisive episode. Despite all of this, Spain’s economy can build onstrong fundamentals such as cheap energy due to the renewables expansion or a growing diversification that reduces dependencies on tourism. If the government succeeds in managing the growing debt issue and precarious housing crisis while maintaining its GDP growth, Spain could become Europe’s new role model. For liberal leaders around the world, Pedro Sánchez and his government may be a role model on how to stand up to authoritarianism, right-wing voices, and transactional geopolitics that weaponise trade and energy, and on leading an economy to success by decisive progressive policies. This was shown and celebrated at the Global Progressive Mobilisation Summit in Barcelona in April 2026, which was hosted by Spain’s Prime Minister and attended by many centre-left leaders from around the world.

Sources: BBC, EuroNews, The Economist

Written by Heiner Burkard

Edited by Sarah Valkenburg and Gabrielle Ludes