Since the end of the coronavirus pandemic, the economies of southern Europe have generally outpaced the rest of the euro area. Spain particularly stands out due to its strong momentum in high-value-added services and a combination of other macroeconomic factors. It is considered the fastest-growing economy in Europe, with a 3.4 percent growth in 2024 and a forecasted growth of 1.6 percent in 2026 and 1.7 percent in 2027.
Why is the Economy of Spain Growing Above the Euro Area Average: Understanding the Factors Driving the Economic Growth of Spain
Most institutions, like the European Union and International Monetary Fund, note that Spain will experience a slowdown starting in 2025 but will remain above the euro area average. A July 2025 report by Goldman Sachs economists showed upward revisions for 2026 and 2027. This reflects strong ongoing performance in 2025. The strong economic performance of Spain comes from a combination of structural, demographic, and external factors.
1. High Value-Added Service
Spain has undergone a remarkable shift from traditional reliance on tourism to a diversified services economy. Sectors such as finance, professional services, information technology, and real estate have expanded rapidly. Goldman Sachs noted these high-value-added industries now contribute three percentage points more to GDP than before the pandemic.
This development reflects a deeper structural change. By broadening the sources of output, Spain has enhanced resilience against global shocks. Unlike many Eurozone peers, its growth is not narrowly concentrated. The added value generated per worker in these sectors has exceeded that of older service industries, improving overall productivity levels.
The structural evolution also positions Spain closer to northern European economies in terms of output composition. Services with higher technological content provide higher growth potential in the long term. Note that the country had closed its GDP per capita gap with the euro area average by 2024. This demonstrates tangible and measurable economic progress.
2. Tourism Industry Revival
Tourism remains central to the identity of Spain. In 2024, the country welcomed a record 94 million international visitors, according to the official tourism authority of the country. The World Tourism Organization also reported that tourism contributed 12.3 percent of GDP in 2023, reinforcing its enduring weight within the national economic framework.
Note that the rebound of its tourism industry was not merely statistical but also symbolic. It represented the recovery of Spain from one of the harshest downturns in Europe. Demand surges in hotels, restaurants, and transportation generated employment and supported consumption across regions. Tourism provides the crucial initial post-pandemic momentum.
Yet Spain has managed to avoid over-reliance on tourism by diversifying into other service sectors and economic activities. This balance ensures long-term sustainability. The combination of tourism revenues with higher value-added services has given the economy both stability and growth. It has also provided insulation from seasonal fluctuations in visitor numbers.
3. Immigration and Demographics
Immigration has been a critical engine for growth. Spain accepted proportionally more immigrants than Germany, France, or Italy during recent years. Most newcomers were well-educated and came from Latin America, North Africa, and Eastern Europe. Their arrival boosts economic dynamism by offsetting the declining fertility rate and aging demographic profile.
A report from the Bank of Spain showed that immigration accounted for more than 20 percent of GDP per capita growth between 2022 and 2024. Immigration improved productivity and ensured a flow of human capital by expanding the labor force with skilled workers. This reinforced the ability of the country to sustain rapid economic progress.
Immigration also bolstered domestic consumption. Consumer demand for housing, goods, and services expanded with new households forming and labor participation increasing. The surge has provided further economic stimulus. María Ramírez noted in The Guardian that about 90 percent of new jobs in recent years were filled by immigrants or dual nationals.
4. Labor Market Strength
Labor data showed that the unemployment rate in Spain fell to pre-2007 levels by 2024. This marked a historic improvement for a country once plagued by double-digit unemployment. The creation of employment opportunities became a defining element of its economic recovery. It contributes both to social stability and broader economic expansion.
The nature of new employment further enhanced resilience. Jobs were created across tourism, high-value-added services, and industry. This reflects diversification. The inclusion of immigrants into the workforce was vital. They filled labor gaps and expanded household consumption. These dynamics increased disposable income levels across the national economy.
Rising labor force participation signaled broader engagement in the growth story of Spain. Those Households previously affected by unemployment are now engaged in economic activities. This improvement in social mobility contributed to narrowing inequalities. It also demonstrated that growth translated into opportunities for citizens and residents.
5. Public Investment Role
Public investment has been pivotal in the post-pandemic direction of Spain. The country was one of the largest recipients of the 750 billion euro recovery fund of the European Union. This financial backing was directed toward green transition, digitalization, and modernization of infrastructure to support both short-term growth and long-term competitiveness.
However, political fragmentation delayed some disbursements, thereby leading to backloading of funds. Goldman Sachs projected that much of the spending will occur in 2026 and 2027. This scheduling means growth support is not immediate but instead provides Spain with medium-term resilience when broader European economic expansion slows.
Strategically, the investments align with decarbonization priorities, renewable energy expansion, and digital innovation. Spain channeled EU funds into transformative initiatives to position itself as a competitive hub within Europe. These undertakings are expected to create more jobs, enhance productivity, and secure sustainable long-term economic development.
6. Fiscal Policy and Public Finances
The fiscal environment of the country has contributed to stability. Data from Eurostat showed that it maintains a structurally lower tax-to-gross domestic product ratio compared to countries like Italy or the euro area average. This provides fiscal flexibility while further supporting household consumption by reducing overall tax burdens relative to regional peers.
Goldman Sachs forecasts fiscal deficits of 2.6 percent of GDP in 2026 and 2027. These reflect manageable debt dynamics while enabling increased defense and infrastructure spending. Such investment-driven deficits are expected to bolster medium-term growth rather than destabilize fiscal accounts, reassuring investors and financial markets alike.
The ability to balance fiscal support with prudence underpins confidence. Despite a fragmented parliament, fiscal discipline remains intact, supported by European oversight mechanisms. The government has avoided excessive imbalances, preserving room for policy responses to external shocks. This makes it a fiscally responsible yet growth-oriented economy.
7. Energy Transition and Renewables
Spain possesses some of the most favorable renewable energy resources in Europe. Its abundant solar, wind, and hydroelectric potential has made the nation a leader in the energy transition. The European Commission highlighted these advantages as contributing to the lower energy costs in the country compared to other European Union members.
Renewables like solar, wind, and hydroelectric power form the backbone of the national supply of the country. National grid operator Red Eléctrica notes that renewables also accounted for more than 50 percent of electricity generation in 2024. This lowers dependence on imported fuels, reduces household costs, and enhances industrial competitiveness.
The strategic commitment to clean energy also aligns with broader EU climate objectives. By positioning itself at the forefront of renewables, Spain attracts investment and technology partnerships. This accelerates modernization while reinforcing the sustainability of its growth path, ensuring long-term advantages in an era of global energy transition.
Economic Outlook for Spain: Sustained Growth Driven by Immigration, Renewables, Public Investment, and Resilient Services Amid Eurozone Slowdown
Spain has a favorable economic outlook for 2026 and 2027. Goldman Sachs upgraded forecasts to 1.9 percent growth in 2026 and 1.7 percent in 2027, higher than prior estimates. These figures reflect continued structural resilience, supported by immigration, high-value-added services, and forthcoming investment through European Union recovery funds.
The backloading of EU capital disbursements ensures that growth support will be available when euro area expansion slows down. Spain will benefit from renewed investment in green energy, infrastructure, and digital sectors. Combined with tourism and resilient trade, these channels are expected to sustain above-average growth momentum.
Risks remain. These include political fragmentation, housing affordability, and productivity. The diversified Spanish economy, competitive energy costs, and demographic advantages provide strong cushions. The convergence with northern European peers continues. Spain is positioned as a leader in sustainable growth and a model for economic adaptation.
FURTHER READINGS AND REFERENCES
- Cingari, P. 26 March 2025. “The Spanish Economy Grew 3.2% in 2024: Why is It Outperforming Peers?” Euronews. Available online
- Goldman Sachs. 31 July 2025. “How Spain Became Europe’s Fastest Growing Major Economy.” Goldman Sachs Insights. Goldman Sachs. Available online
- Red Eléctrica. 19 December 2024. “Renewable Energies Generated 56% of Spain’s Electricity Mix in 2024.” Press Releases. Red Eléctrica. Available online
- Ramírez, M. 19 February 2025. “Why is Spain’s Economy Booming? Thanks to Migration – Which Proves Xenophobia Doesn’t Pay.” The Guardian. Available online