Spain is emerging as one of Europe’s strongest economic performers, outpacing its larger neighbours with robust growth driven by tourism, foreign investment, immigration, and renewable energy advantages.
The southern European nation is forecast to expand its gross domestic product (GDP) by 2.5% this year, compared with sluggish growth in France (0.6%), Germany (0%), and Italy (0.7%).
According to the Spanish National Statistics Institute (INE), GDP rose 0.7% in the second quarter, surpassing expectations of 0.6% and improving on the 0.6% growth recorded in the first quarter.
Finance Minister Carlos Cuerpo told CNBC, highlighting Spain’s exceptional performance, saying, “For the second year in a row, we will be the advanced economy number one in terms of GDP growth.”
Tourism, immigration and consumption drive expansion
Tourism remains a cornerstone of Spain’s economy, accounting for around 12% of GDP.
The post-pandemic rebound and relatively lower prices compared with Western European peers have attracted millions of visitors, bolstering job creation.
The tourism workforce reached nearly 3 million people in 2024, a 9.7% increase from the previous year.
However, the sector’s growth has also sparked protests in cities like Barcelona, where locals expressed frustration over mass tourism during peak seasons.
Immigration has also been pivotal, with Spain planning to welcome nearly a million migrants in the next three years.
Since 2021, 90% of the increase in the labour force has come from immigration, largely from Colombia, Venezuela, and Morocco.
This influx has allowed Spain’s services sector to expand, kept wage pressures in check, and supported competitiveness despite a high inflationary environment.
Consumption and investment, along with European Union recovery funds, have further strengthened economic activity.
Spain has already received €55 billion of the €163 billion allocated from the EU’s Next Generation funds, which are being channelled into modernisation projects, including renewable energy and non-tourism service exports.
Renewable energy and low costs attract foreign investment
Spain’s early investments in green energy are paying off.
The share of renewables in electricity generation has risen significantly over the past five years, leading to a 40% drop in wholesale electricity prices.
This has shielded the economy from the energy shocks that hit much of Europe after Russia invaded Ukraine in 2022.
Lower energy costs are proving attractive to foreign investors.
Chinese solar company Arctech established its European headquarters in Madrid in 2024, citing Spain’s strong photovoltaic ecosystem.
Auto manufacturer Stellantis and battery producer CATL also announced a €4.3 billion lithium iron phosphate battery plant in Zaragoza, reflecting Spain’s growing role in Europe’s sustainable mobility sector.
Spain is now the fourth most attractive destination for foreign direct investment in the EU.
The US remains the largest investor, but China has also pledged €11 billion for 33 projects in 2025, focusing on renewables and mobility.
Challenges ahead despite strong momentum
Despite its momentum, Spain faces structural challenges.
The country has the highest youth unemployment rate in the EU and must balance wages with rising living costs.
Economists also point to high savings rates, low investment levels, and the need to reduce public debt and deficits.
Climate change and political divisions add further uncertainty.
Still, Spain’s mix of tourism, immigration-driven labor supply, renewable energy advantages, and strong foreign investment positions it as a standout performer in Europe.
As Finance Minister Cuerpo put it, “Spain is a great outlier now in terms of growth. It’s also a great place to invest.”
This post Why is Spain’s economy doing well? may be modified as updates unfold
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