Spain: The EU’s new economic driver

This week, the Spanish Chamber of Commerce and Industry (La Cámara) celebrates “La Fiesta,” an annual showcase of Spanish culture and gastronomy. In commemoration, this piece provides an up to date assessment of the Spanish economy and shows how Spain is leading the European Union in growth and technological advancements.

Often overshadowed by its bigger neighbors like France, Germany and Italy, Spain has recently emerged as the outstanding economic performer among Europe’s advanced economies. Spain’s economy has outgrown that of its bigger neighbors, clocking in GDP growth of 2.7 percent in 2023 and a remarkable 3.2 percent in 2024. This occurred while France eked out a growth of only 1.1 percent for both years and while Germany fell into recession. Spain outpaced the entire Eurozone, whose growth was only 0.7 percent in 2024.

What makes Spain’s performance even more impressive is that it occurred amid the devastating floods that ravaged Valencia last October. The calamity shaved off 0.2 percent in economic growth.

Spain has seen more aggregate GDP growth than Germany, France and Italy since 2008 and continues to pull ahead. If Spain is able to sustain its three percent growth rate, it will overtake Italy to become the EU’s third largest economy by 2035.

Economic drivers

There are four main drivers of Spain’s economic renaissance. The first is immigration.

Spain’s population skyrocketed, thanks to an influx of working age immigrants. Since 2021, data show that despite 696,000 Spaniards retiring from the workforce, some 1.258 million entered it, giving it a net positive intake of 562,000 workers. Spain’s workforce is now 21.2 million strong.

The growth of the manufacturing sector has snapped-up the workforce, allowing unemployment to decrease from 12.92 percent in 2022 to only 10.6 percent in 2024.

But while immigration has positively impacted the economy, it also comes with a downside. A higher population dampened the increase of per capita income. It grew by only two percent despite the economy’s expansion of 3.2 percent. The influx of new residents also pushed-up housing prices. Rental rates have increased by 80 percent in the last decade, triggering a cost of living crisis. These days, the average Spaniard spends 40 percent of his income on rent, compared to just 27 percent median in the EU.

The rise in cost of housing compelled Prime Minister Pedro Sanchez to scrap the golden visa program by next month. He is also flirting with the idea of imposing a 100 percent tax on new home purchases by non-EU buyers.

The second economic driver is energy. Spain’s government has invested heavily in renewable energy since the early 2000’s. Today, it has become the first European country to derive more than 50 percent of its energy requirements from renewable sources. Spain also has Europe’s largest natural gas processing capacity. This has given it a competitive advantage over other EU nations who are scrambling to build liquified natural gas infrastructure to replace pipeline gas from Russia.

The result, cost of power is roughly 50 percent cheaper in Spain than it is in Germany and Italy. Not only has this helped lower inflation, it has also fired up the manufacturing sector. Manufacturers of advanced technologies are flocking to Spain in droves. Foreign direct investments topped $29.1 billion in 2023, which caused industrial outputs to increase by 12 percent. The same trends are seen for 2024.

Spain generated export earnings of $365.4 billion in 2023 with a slight decrease of 2.4 percent in 2024. This has helped pare down its budget deficit from 4.7 percent in 2022 to about 2.9 percent in 2024.

The third driver is labor. During the economic crisis of 2008, it will be recalled that Spain (along with Italy, Greece and Portugal) were challenged to service their sovereign debts due to weak tax collections and export revenues. It was said that products produced by Southern Mediterranean economies were less competitive than their northern counterparts due to a labor force that was overpaid and less productive.

The Spanish government, under PM Mariano Rajoy, took the situation to heart. Reforms were enforced to weaken labor unions, allow greater working flexibility, reduced minimum wage and making it easier to disengage with employees.

The reforms yielded positive results. By 2021, productivity was up to par with the Germans, yet cheaper. This made Spain an attractive investment destination for advanced manufacturing. Unemployment dropped and wages increased by 5.2 percent and 3.07 percent in 2023 and 2024, respectively.

The fourth driver is tourism. Spain is the second most visited country in the world. It attracted 85.1 million visitors in 2023 and 88.5 million in 2024. Not only is this due to Spain’s colorful culture, outstanding gastronomy and spectacular historical sights, it is principally enabled by an impressive network of highways and railways that allows seamless connectivity across the Spanish peninsula. Massive investments in infrastructure that started in 1978, thanks to the policies of PM Adolfo Suarez, are now paying dividends in spades.

Spain generated about $112 billion in direct tourism revenues, not counting indirect incomes. Tourism contributes 12 percent of GDP.

The Spanish leadership has done many things right and as a result, put Spain on the path to becoming a strong, competitive advanced economy.

Filipinos can learn much from Spain’s example. Among the virtues we can learn are the swiftness in instituting reforms; faithfulness and consistency in implementing long-term plans; investments in infrastructure; focus on productivity and competitiveness; rejection of corruption; a passion to preserve heritage and culture whilst strengthening soft power and its country brand.

After all, beneath our Americanized veneer, the Filipino is, in his core, still heavily influenced by Spain. This is evident in our values, family-centeredness, religiosity and zest for life. Spain remains our true madre patria.

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Email: [email protected]. Follow him on Twitter @aj_masigan