How Spain’s economy became a European hope

It’s a cold midwinter afternoon in Segovia, central Spain, and tourists gather at the foot of the city’s Roman aqueduct, taking selfies staring at the famous arch.

Many of the visitors are Spanish, but there are also other European countries, Asians and Latin Americans. Everything is depicted by Segovia’s historic charm, gastronomy and dramatic locations across the mountains north of Madrid.

“There was a moment during COVID when I thought ‘Tourism would never have been like it was before,'” he wore a fuchsian bellet looking to lead the group across the city. says local guide Elena Milon.

“But now it’s been very good and I feel like this will be a good year, like 2023 and 2024, because I can love this job.”

Spain received a record 94 million visitors in 2024, and now 100 million people are fighting with France for being the world’s largest hub of foreign tourists.

And the post-Covid expansion of the tourism industry is the main reason why the fourth-largest economies in the eurozone easily grew Germany, France, Italy, the UK and others, pronounced an increase in GDP of 3.2% last year.

In contrast, the German economy signed 0.2% in 2024, while France rose 1.1%, Italy rose 0.5%, and the UK rose 0.9%.

All this helps explain why the Economist Magazine ranked Spain as the world’s most performant economy.

“The Spanish model is a balanced model and it is a success, and this guarantees sustainability of growth,” says Carlos Querpo, the business minister for the socialist-led coalition government. He points out that Spain was responsible for 40% of eurozone growth last year.

He emphasized the importance of tourism, but Querpo also said that financial services, technology and investments will be the factors that will help Spain bounce back from the depths of the pandemic when GDP shrinks by 11% in a year. I pointed out.

“We are out of COVID by modernizing our economy and resolving potential GDP growth,” he adds.

That modernization process is supported by post-pandemic recovery funding from the EU’s next-generation programme. Spain is expected to receive up to 163 billion euros ($169 billion, £136 billion) by 2026, making it the largest recipient of these funds along with Italy.

Spain invests money in the national railway system, low-emission areas of towns and cities, and the electric vehicle industry and subsidies for small businesses.

“Public spending is high and I’m responsible for about half of the growth since the pandemic,” said María Gesús Valdemoros, a lecturer in economics at the IESE business school in Spain.

Other major European economies have seen their growth be hampered by greater trust than industry Spain. She says, “they are suffering from a lot at this time due to factors such as high energy costs, China and other Asian countries. The cost of a more sustainable environmental model and the transition to trade protectionism.”

Since Covid, other major economic challenges for Spain have been the cost-of-living crisis caused by the supply chain bottleneck and the 2022 Russian invasion of Ukraine. Energy prices have been particularly hard hit by the Spaniards, but by the end of 2024 it has returned to 2.8%.

Madrid believes that subsidies have been introduced to reduce fuel consumption costs, reduce the impact of public transport use of mitigating the impact of rising energy prices, and reduce some increases to the minimum wage. Masu.

During the European energy crisis, Spain and Portugal will negotiate with Brussels with the so-called “Iberian exception” to reduce the price of gas used to generate electricity to reduce consumer bills. It’s done.

Cuerpo argues that such measures have helped counter economic disruption to traditional Spanish vulnerabilities.

“Spain has proven resilient due to its successive shocks, including the inflation shock that comes with the war in Ukraine,” he said. “And I think this is part of the overall protective shield we’ve put in place for our consumers and businesses.”

The country’s green energy output is considered another positive factor in ensuring electricity as well as promoting investment. Spain has the second largest renewable energy infrastructure in the EU.

According to Wayne Griffith, UK-born CEO of Seat and Capra, the latter is a boon in the country, the second largest car producer in Europe. Although Spanish electric vehicle production is lagging behind other parts of Europe, he sees great potential in that area.

“There are all the factors needed to succeed (in Spain): there are competitive, well-trained people and the energy policies behind them,” he says. “It’s pointless to create a zero-emission vehicle when you’re using dirty energy.”

Despite these positives, the long-standing weakness of Spain’s economy is the chronically high unemployment rate, the largest in the EU, almost twice the average for the bloc. However, things improved in the last quarter of 2024. Spain’s unemployment rate fell to 10.6%, the lowest level since 2008.

Meanwhile, the number of people employed in Spain is currently at 22 million, a record high. Labor reform is seen as an important reason for this by promoting job stability.

The reforms increased restrictions on the use of temporary contracts by companies and supported greater flexibility in the use of permanent contracts. We reduced the number of temporary employment workers without hindering job creation.

Additionally, while the arrival of immigrants has encouraged intense political debate, labor market absorption is considered important to many people for a rapidly aging country.

Socialist Prime Minister Pedro Sanchez is frankly speaking about emphasizing the need for immigration and describing contributions to the economy as “basic.”

The European Commission predicts Spain will continue to grow among the bloc’s larger economy this year, ahead of the EU average. However, challenges are looming on the horizon.

The huge reliance on tourism and the growing backlash from locals against the industry are one concern.

The other is Spain’s vast public debt. This is higher than the country’s annual economic output.

María Gesús Valdemoros warns that this is “an imbalance that needs to be fixed because the new EU fiscal norms not only require it but can cause economic instability.”

Plus, the housing crisis has exploded across the country, with millions of Spaniards struggling to find affordable accommodation.

The uncertain and deeply polarized political landscape makes it difficult for a minority government in Sanchez to tackle such issues. However, while trying to solve these challenges, Spain enjoys its position as a European growth movement.