Because the Spanish economy is doing very well

In recent days, the European Commission has published growth forecasts for EU member states. Gross Domestic Product (GDP) at the end of this year will increase by 1.4% on average, but there are countries that record more than double growth: Spain will close 2025 with an increase of 2.9%. This figure is much higher than for large countries such as Germany (+0.2%) or Italy (+0.4%), but this is not unexpected news: Spain has had positive economic results for months and in September international credit rating agencies also raised their estimates regarding the reliability of public finances and debt management. As he wrote Financial TimesSpain is currently the country with the most surprising and best performing economy in Europe.

The first data to start with is related to the labor market. Over the last ten years, unemployment in Spain has halved – although it is still quite high, at 11.4% – and in parallel, the employment rate, i.e. the number of people looking for and finding work, has increased, at around 80%. More jobs mean more wages and therefore greater consumption, which is a major component of GDP (the others are public spending, business investment and the foreign trade balance). Economists at the European Commission agree that consumption is driving Spain’s growth, which is a direct result of a better functioning labor market.

What makes it more efficient are reforms in 2021 that address one of the country’s historic weaknesses: contract vulnerabilities. Until then, the most extensive temporary contract waswork and servicetheoretically intended for independent work of uncertain duration but often used so widely as to be imprecise. The use of temporary contracts has since been restricted to very limited cases and in parallel to certain cases intermittent fijopermanent contracts used for seasonal or intermittent activities. Workers maintain a stable relationship with the company, with seniority, protection and access to training, but are called to work only when necessary. The minimum wage also contributes to avoiding the phenomenon of “bad jobs”, which in 2025 is set at 1,184 euros gross per month.

In addition to reviewing contract regulations, Spain has invested heavily in the creation of new jobs: in ten years it has spent 6.8 billion dollars on active measures such as training, recruitment incentives and entrepreneurship programs. These activities are managed through a network of 715 employment centers spread across 17 Autonomous Communities, and coordinated by SEPE (Servicio Público de Empleo Estatal), the national public employment agency.

This decentralized model allows for greater integration between vocational training, business and job placement, although this has not eliminated some long-standing problems. Regional disparities remain enormous, and regions such as Andalusia and Extremadura record much higher unemployment rates than the Basque Country or Navarra. Youth unemployment also remains very high, as does forced part-time work (i.e. that undertaken by people who would prefer to work full-time but have no other choice), which is one of the highest in the European Union (47.4%).

In recent years Spain has become an attractive country for foreign multinational companies. According to research carried out by the consulting company TEHA – The European House Ambrosetti, in the last ten years investment from abroad was worth 304 billion, much more than that which came into Italy (191 billion). These funds include strengthening traditional sectors such as agriculture, or expanding the service sector, especially banking and insurance. According to Diego Begnozzi, the TEHA consultant who oversaw the research, “they have also strengthened and diversified the industry structure”. Even though Spain remains a country that places great importance on tourism – in 2024 it had 94 million visitors, the highest figure ever -, according to Begnozzi “the country is developing rapidly in the manufacturing sector, and a relevant example is the automotive sector”. Currently, Spain is the second largest car producing country in Europe after Germany, with 2.4 million vehicles produced by 2024. This sector alone is worth 10% of GDP.

Spanish and even foreign companies know that they can find workers more easily than before also because the migration policy of recent years has been very flexible and oriented to the needs of the production system.

That Difficult scope of work catalogue allows companies to hire non-EU workers all year round, without waiting for quotas or “click days”. This approach has contributed to very rapid growth in the number of foreign-born residents: from 2015 to 2024, the number increased to 18.6% of the total population, one of the highest percentages in Europe. Language is an additional factor to facilitate the integration of those arriving, considering that almost half of immigrants come from Latin America, and this accelerates integration into the labor market. The country has also created a permanent regularization tool that turns precarious workers into legal workers, outside the logic of amnesties and extraordinary measures.

An important boost to Spain’s growth also came from the EU’s Next Generation Europe program, of which Spain is one of the main beneficiaries. Between non-repayable loans and subsidized loans in 2026, the country will earn 163 billion, the highest share after Italy. According to Randolph Bruno, lecturer in international economics at the Catholic University of Milan, this spending is “interpreted as a share of GDP that can be measured at between 1.2% and 1.7%, according to different estimates from bodies such as the Central Bank of Spain and Eurostat”.

To set goals and advance the Next Generation EU, Spain has chosen a highly participatory model. The government has established a coordinating body that includes, in addition to central and local governments, also business and labor organizations, thereby increasing the diffusion and transparency of interventions.

Much of the funding has gone to the renewable energy sector, which accounts for more than half of the nation’s energy needs, a much larger amount than most of its European counterparts. This diversification of resources has reduced dependence on oil and gas, and lowered costs: a megawatt-hour of energy costs 61 euros in Spain, much cheaper than in Germany (83 euros) and Italy (109 euros). This makes life easier for those who want to start a business, considering that energy bills are one of the main cost items in many industrial sectors. However, as the power outages last April showed, the country is facing major problems in updating the transmission network and this will require expensive infrastructure investments in the future.

Madrid Open tennis crowd during a power outage, April 28, 2025 (AP Photo/Manu Fernandez)

According to Carlo Altomonte, lecturer in European Integration Economics at Bocconi University in Milan, “it is important to verify how much Next Generation EU spending has translated into structural growth and what the Spanish GDP contraction will be at the end of the investment program.” The problem lies not in continued economic growth, but rather in “ensuring uniform and fair growth in the various regions of the country”, given that the country’s decentralized structure can distribute the benefits of growth differently. Another important thing that needs to be considered is increasing labor productivity, namely the share of added value per hour worked. In Spain the figure is always lower than in other European countries because the size of the company is small so investment in technology and production process innovation is more limited than in other countries.

Added to this is political instability. Socialist Prime Minister Pedro Sánchez, who has ruled since 2018 and has pushed through most of the measures beneficial to the economy, is severely weakened by a series of scandals and divisions within his coalition. The next elections are scheduled for 2027, and currently, according to opinion polls, the political situation is very fragmented.