How Spain’s economic system become the envy of Europe

It is a cold mid-winter afternoon in Segovia, in central Spain, and vacationers are amassed on the foot of town’s Roman aqueduct, observing up at its well-known arches and taking selfies.

Lots of the guests are Spanish, however there also are other folks from different Ecu nations, Asians and Latin American citizens, all drawn by way of Segovia’s historical attraction, gastronomy and dramatic location simply past the mountains north of Madrid.

“There was once a second all over Covid after I idea ‘perhaps tourism won’t ever, ever be adore it was once earlier than’,” says Elena Mirón, an area information wearing a fuchsia-coloured beret who is ready to steer a gaggle around the town.

“However now issues are superb and I think this yr goes to be a just right yr, like 2023 and 2024. I am satisfied, as a result of I will be able to are living off this activity I really like.”

Spain won a report 94 million guests in 2024 and is now vying with France, which noticed 100 million, to be the sector’s greatest overseas vacationer hub.

And the tourism business’s post-Covid growth is a big explanation why the eurozone’s fourth-biggest economic system has been simply outgrowing the likes of Germany, France, Italy and the UK, posting an build up in GDP of three.2% ultimate yr.

In contrast, the German economic system reduced in size by way of 0.2% in 2024, whilst France grew by way of 1.1%, Italy by way of 0.5%, and the United Kingdom by way of an anticipated 0.9%.

This all is helping provide an explanation for why the Economist mag has ranked Spain as the sector’s best-performing economic system.

“The Spanish type is a hit as a result of this is a balanced type, and that is what promises the sustainability of expansion,” says Carlos Cuerpo, the industry minister within the Socialist-led coalition executive. He issues out that Spain was once answerable for 40% of eurozone expansion ultimate yr.

Even if he underlined the significance of tourism, Mr Cuerpo additionally pointed to monetary services and products, era, and funding as elements that have helped Spain leap again from the depths of the pandemic, when GDP shrank by way of 11% in 365 days.

“We’re getting out of Covid with out scars and by way of modernising our economic system and due to this fact lifting our attainable GDP expansion,” he provides.

That modernisation procedure is being aided by way of post-pandemic restoration budget from the EU’s Subsequent Era programme. Spain is because of obtain as much as €163bn by way of 2026 ($169bn; £136bn), making it the most important recipient of those budget along Italy.

Spain is making an investment the cash within the nationwide rail machine, low-emissions zones in cities and towns, in addition to within the electrical car business and subsidies for small companies.

“Public spending has been top, and is answerable for roughly part our expansion for the reason that pandemic,” says María Jesús Valdemoros, lecturer in economics at Spain’s IESE Trade College.

Different primary Ecu economies have observed their expansion stymied by way of their larger reliance than Spain on business, which, she says, “is struggling so much these days because of elements such because the top charge of power, pageant from China and different Asian nations, the price of the transition to a extra sustainable environmental type and business protectionism”.

Since Covid, the opposite primary financial problem for Spain has been the cost-of-living disaster caused by way of supply-chain bottlenecks and the Russian invasion of Ukraine in 2022. Inflation peaked at an annual price of eleven% in July of that yr, with power costs hitting Spaniards specifically laborious, however by way of the tip of 2024 it had fallen again to two.8%.

Madrid believes that subsidies it offered to chop the price of gasoline intake and inspire public delivery use had been key in mitigating the have an effect on of the power value rises, in addition to a number of will increase to the minimal salary.

On the top of the Ecu power disaster, Spain and Portugal additionally negotiated with Brussels a so-called “Iberian exception”, permitting them to cap the cost of gasoline used to generate electrical energy as a way to scale back shoppers’ expenses.

Mr Cuerpo argues that such measures have helped counter Spain’s conventional vulnerability to financial turmoil.

“Spain is proving to be extra resilient to successive shocks – together with the inflation surprise that got here with the struggle in Ukraine,” he mentioned. “And I believe this is a part of the full protecting protect that we have got installed position for our shoppers and for our companies.”

The rustic’s inexperienced power output is observed as some other beneficial issue, now not simply in ensuring electrical energy, but additionally spurring funding. Spain has the second-largest renewable power infrastructure within the EU.

The latter is a boon for a rustic this is Europe’s second-biggest automotive manufacturer, in line with Wayne Griffiths, the British-born CEO of Seat and Cupra. Even if Spanish electrical car manufacturing is lagging at the back of the remainder of Europe, he sees huge attainable in that space.

“[In Spain] we have now the entire elements you want to achieve success: aggressive, well-trained other folks and likewise an power coverage at the back of that,” he says. “There is not any level in making zero-emission automobiles if you are the usage of grimy power.”

Regardless of those positives, a longstanding weak spot of Spain’s economic system has been a chronically top jobless price, which is the most important within the EU and nearly double the block’s reasonable. Then again, the location did beef up within the ultimate quarter of 2024, when the Spanish jobless unemployment price declined to ten.6%, its lowest degree since 2008.

In the meantime the selection of other folks in employment in Spain now stands at 22 million, a report top. A labour reform, encouraging activity balance, is observed as a key reason why for this.

This reform greater restrictions on the usage of transient contracts by way of corporations, favouring larger flexibility in the usage of everlasting contracts. It has lowered the selection of staff in transient employment with out hindering activity advent.

Additionally, despite the fact that the coming of immigrants has pushed a fierce political debate, their absorption into the labour marketplace is observed by way of many as an important for a rustic with a all of a sudden getting old inhabitants.

The Socialist top minister, Pedro Sánchez, has been outspoken in underlining the desire for immigrants, describing their contribution to the economic system as “elementary”.

The Ecu Fee has forecast that Spain will proceed to steer expansion some of the bloc’s large economies this yr and stay forward of the EU reasonable. Then again, demanding situations are looming at the horizon.

The heavy reliance on tourism – and a rising backlash in opposition to the business by way of native other folks – is one fear.

Every other is Spain’s huge public debt, which is upper than the rustic’s annual financial output.

María Jesús Valdemoros warns that that is “an imbalance that we want to right kind, now not simply for the reason that EU’s new fiscal norms call for it, however as a result of it will motive monetary instability”.

As well as, a housing disaster has erupted around the nation, leaving hundreds of thousands of Spaniards suffering to search out inexpensive lodging.

With an unsure and deeply polarised political panorama, it’s tough for Sánchez’s minority executive to take on such issues. However, whilst it makes an attempt to get to the bottom of those conundrums, Spain is taking part in its standing because the motor of Ecu expansion.