Why Spain’s economy is doing so well

Spain’s booming financial system is outpacing its European neighbors as tourism, overseas funding and immigration helps gasoline progress.

The southern European nation continues to be main progress within the euro zone with annual gross home product forecasted to rise 2.5% this 12 months, whereas the economies of France, Germany and Italy are respectively forecast to increase 0.6%, 0% and 0.7%.

Spain’s GDP surpassed expectations within the second quarter, rising 0.7%, above a Reuters forecast of 0.6%. The expansion was additionally larger than the earlier three months, which levelled at 0.6%, information from the Spanish Nationwide Statistics Institute (INE) confirmed.

“For the second 12 months in a row, we would be the superior financial system primary by way of GDP progress,” Spain’s Finance Minister Carlos Cuerpo advised CNBC in April. 

“Spain is a good outlier now by way of progress. It is also a terrific place to speculate,” he added.

The success of Spain’s financial system depends on excessive consumption and funding, in addition to tourism, Subsequent Technology European funds, and immigration.

“It isn’t simply tourism, it is also non-tourism companies. We’re exporting extra by way of companies to companies like IT, accountability companies, monetary companies, than we’re exporting by way of tourism — 100 billion euros [$116.8 billion] with respect to 94.95 billion [euros in tourism]. In order that’s a component of modernization of the Spanish financial system,” mentioned Cuerpo.

Regardless of this financial progress, a number of challenges await Spain, akin to retaining pay in keeping with the rising price of residing, local weather change, an ever extra divided political scene and the actual fact the nation has the best unemployment fee within the EU.

“What’s going to occur with tariffs and worldwide commerce, particularly in an financial system like Spain, the place exports of products have elevated significantly during the last 15 years?” mentioned Cardoso.

“The second problem is that the financial savings charges stays comparatively excessive. A 3rd supply is that this low funding charges. And eventually, the best way to lower the federal government deficit and public debt.”

Nonetheless, tourism in Spain represents round 12% of the nation’s GDP, because it advantages from the pandemic rebound, and cheaper costs in comparison with different Western European nations.

The sector’s success has sparked backlash from native communities over the inflow of individuals visiting historic and widespread websites, significantly in the course of the peak summer season months. Final 12 months in June, protesters in Barcelona had been seen spraying travellers with water weapons and shouting “vacationers go dwelling.”

The sector may rely on its rising workforce of practically 3 million folks as of 2024, a development of 9.7% in comparison with 2023.

Job creation can be supported by excessive immigration. Whereas different European international locations are closing their borders, Spain is planning to welcome practically 1,000,000 migrants over the subsequent three years, by way of work visa schemes and the granting of residence permits to undocumented staff.

“90% of the rise within the labour drive since 2021 comes from immigration,” BBVA Analysis’s Chief Economist Miguel Cardoso advised CNBC.

“That is permitting the service sector to increase. That is retaining companies comparatively aggressive by way of containing the rise in labour prices, and it is permitting, for instance, the costs in companies to stay comparatively contained in a excessive inflationary atmosphere.”

Las 12 months, most individuals migrating to Spain got here from Colombia, Venezuela and Morocco.

“Latin American economies, a few of them usually are not doing comparatively nicely, so there’s this push issue. There’s additionally the truth that immigration to the US has turn into tougher, and subsequently persons are turning round and seeing alternate options,” added Cardoso.

Spain’s financial system has additionally been bolstered by the European Union’s Subsequent Technology EU funds which has made 163 billion euros accessible to Spain, by way of grants and loans. The nation is the second largest beneficiary of this pandemic restoration help, following Italy. 

Spain’s Cuerpo advised CNBC that 70% of the grants — 55 billion euros — have already been dispersed.

“This was a program that was designed partially to attempt to assist with the restoration after the pandemic,” mentioned Cardoso.

“So the federal government prioritized funding tasks that they already had a plan for, and subsequently they’re having a comparatively low multiplying impact inside the financial system.”

Nonetheless, the Spanish authorities goals to make use of these funds in sectors akin to non-tourism companies exports, together with renewables. 

Since investing in inexperienced power within the 2000s, Spain has benefited from low power prices and has seen much less impression from the European power disaster that adopted Russia’s invasion of Ukraine in 2022.

“The rise within the renewable share within the electrical energy combine over the previous 5, six years has implied a drop of 40% in wholesale electrical energy costs,” Cuerpo mentioned. 

Low manufacturing prices are a horny criterion for firms, significantly overseas buyers, who additionally provide the sector.

Photovoltaics tracker firm Arctech, based in China in 2009, opened its European headquarters in Madrid in 2024. Photovoltaic cells convert daylight straight into electrical energy. It is a burgeoning renewable power supply that may result in decrease electrical energy prices.

“Spain might be the placement in Europe the place essentially the most PV has been accomplished,” Arctech’s EU and NA Markets Normal Supervisor Pedro Magalhaes advised CNBC.

“The photo voltaic ecosystem is admittedly right here [in Spain], from the junior engineer, all the way in which to the funds which might be investing in these massive belongings.”

The corporate now boasts 17 branches exterior China, and is planning to increase in Jap Europe, in addition to plans to diversify into storage options.

“Issues are occurring right here. We use the port of Valencia to import and distribute to many places in Europe,” Magalhaes added.

Like Arctech, many overseas firms are planning to make the most of the nation’s low power prices.

Auto large Stellantis teamed up with battery producer CATL in late 2024, asserting plans to construct a $4.3 billion lithium iron phosphate battery plant in Zaragoza, northeastern Spain.

International direct funding in Spain is robust too, with the nation rating because the fourth most engaging nation within the EU for buyers. China alone declared will probably be investing as much as 11 billion euros in Spain in 2025, because it gears up for a document 33 new tasks within the nation. 

“While you take a look at the place does that funding come from, the biggest investor in Spain is U.S.,” mentioned Cuerpo.

“However we’re additionally attracting funding from different elements of the world, together with China, on particular sectors associated to renewables, to sustainable mobility as nicely, and that is in fact, all the time a part of our financial safety agenda.”

Correction: This story has been up to date to mirror that Spain had the best unemployment fee within the EU in June.