Spain’s economy keeps outpacing Europe, thanks to tourism, immigration, and a budding pharma sector. But tariff threats and structural challenges loom.
Since the Covid-19 pandemic peaked in 2021, the Spanish economy has consistently outperformed the rest of Europe, and economists expect it to outshine its peers this year once again. That doesn’t mean the country is immune to global headwinds, however, including the tariff disruptions and trade tensions that Washington ignited in April, and by 2026, GDP growth is seen slowing significantly from its current lively pace.
“We already know that economic growth in the first quarter of 2025 was very strong. That’s a solid starting point,” says Miguel Cardoso, chief economist for Spain at BBVA Research. First-quarter GDP, published at the end of April, was 0.6%, quarter on quarter.
Over the past five years, Spain has drawn international attention for its robust growth compared with neighboring countries. A combination of strong domestic demand—driven by tourism, immigration, and public spending—has fueled a much-needed expansion while the country’s standard of living has edged closer to that of wealthier European nations.
Since 2021, when Spain began recovering from a steep contraction, GDP growth has consistently outpaced the broader eurozone. Last year, it notched 3.2% compared to 0.7% for the eurozone.
The International Monetary Fund (IMF) projects Spain’s growth will remain above the eurozone average at 2.5% in 2025, 1.8% in 2026, and a medium-term potential of around 1.7% for subsequent years, but warns of downside risks including escalating trade tensions, increasing domestic political uncertainty, and demographic aging.
Early on, some economists predicted that Spain’s streak of outperformance would be short, citing structural challenges such as a limited infrastructure capacity, persistently high unemployment, an aging population, and a shortage of innovation-driven, highvalue jobs. So far, however, those forecasts have proven incorrect.
In late April, a power blackout occurred across the Iberian Peninsula, demonstrating one aspect of weak infrastructure in both Spain and Portugal. Spain has poor connections to the European grid, which make it difficult to share power and balance supply and demand, especially when renewable energy generation fluctuates.
The day-long blackout “will probably subtract between 0.1% to 0.2% from GDP growth in second-quarter 2025,” Cardoso predicts, “depending on whether firms can recover anywhere between 75% to 90% of lost production.”
Most economists express cautious optimism, anticipating that the impact on Spain of the Trump tariffs and global trade tensions, while not negligible, will remain relatively contained.
“Spain’s direct exposure to US tariffs is very limited. Exports of goods to the US represent just 1% to 1.5% of Spain’s GDP,” Cardoso notes. “That’s three to four times less than Germany’s exposure.”
Exports to the US are concentrated in specific products such as olive oil. According to the EU, Spain exported over 118,000 metric tons of the liquid to the US during the 2023-2024 crop year, with higher volumes expected in the current season thanks to increased availability and lower prices.
The bigger concern lies in the economy’s indirect exposure to a potential recession in Germany, Europe’s economic powerhouse. “A recession in Germany would be very bad for Spain’s tourism sector,” Cardoso warns.
Growth Drivers
In recent years, tourism has been one of the key drivers of Spain’s economic growth. In 2024, the country welcomed a record 94 million international visitors, narrowing the gap with France, which remains the world’s top destination with 100 million. For economists, the question has been when the supply of tourism-related services—such as hotels, bars, and restaurants—would begin to show strain under rising demand.
So far, however, tourism continues to expand, stretching into off-peak seasons and reaching less traditional destinations.
“Data through March show that foreign spending in Spain is still growing at double-digit rates. Credit card spending by foreigners rose 12% to 13% year-on-year in the first quarter,” Cardoso notes.
Tourism patterns are also shifting, he says, as travelers take shorter, more frequent trips rather than the traditional, fixed-period family holidays. The change is enabling a more efficient use of tourism infrastructure, he says.
But growth in demand could still hit a limit in the number of hotels, restaurants, and other structures available.
“There are already signs of price pressures, and infrastructure will soon reach its limits,” says Sergi Jiménez-Martín, professor of Economics at Pompeu Fabra University in Barcelona. “I wouldn’t mind seeing a negative shock to tourism, as it could ultimately benefit the economy by encouraging more semi-skilled youth and immigrants to shift into other industries.”
Tourism is a low-productivity, lowvalue-added sector, he argues, and redirecting employment toward other areas could lead to a more efficient and healthier economy.
Another element behind Spain’s recent outperformance is immigration.
“The Spanish economy expanded significantly, partly because the Covid-19 shock was so severe but also because of strong population growth, with about 2 million new residents, mostly from Latin America,” Jiménez-Martin says. Shared language and cultural ties have helped make immigration a net benefit for the economy, he adds, and while the new residents have often been low- or middle-qualified workers, a more promising expansion would be in different high-value growth sectors.
The pharmaceutical industry stands out as a success story. Accounting for some 1.5% of GDP and employing about 170,000 people in high-value jobs, it plays a still-small but promising role in the economy.
Spain is already one of the world leaders in clinical research. Since last year, it has ranked first in Europe, conducting nearly 1,000 clinical trials annually and surpassing Germany for the first time. Coming as countries like Germany and Belgium are seeing declines, this growth is driven by tax incentives, a cost-effective and skilled workforce, and a relatively fast regulatory process.
“Spain has some of the world’s fastest approval times,” says Oscar Salamanca, CEO of Ápices CRO, which provides support for clinical trials, and president of the Spanish Association of Contract Research Organizations (ACRO). “The time to treat the first patient is usually 90 to 100 days, compared to up to 300 in other countries. Costs are also much lower: up to five times less than in the US and two to three times lower than in much of Europe.”
These advantages have attracted global pharmaceutical giants like Novartis, Roche, and AstraZeneca, to establish research centers in Spain: particularly in Madrid and Barcelona, with additional hubs in Valencia, Seville, Málaga, and Santiago de Compostela.
Long-Term Worries
While tourism and pharmaceuticals, each in its own way, point toward future economic growth, a relatively low level of investment—mostly due to regulation and uncertainties—has many economists worrying that high public debt and an uncertain political landscape will cause Spain to hit its infrastructural limits in the coming years.
The government of Prime Minister Pedro Sánchez is a coalition between the socialist PSOE and other political forces to its left, including the main Catalan nationalist party. A new general election is to be held by August 2027.
Public debt level as a percentage of GDP was 101.8% at the end of last year. According to the latest IMF report, Spain’s debt remains vulnerable to growth and financing cost shocks.
“Given still-high debt and the economy’s strong cyclical position,” the IMF recommended in its April report, “there is a case for frontloading the authorities’ planned adjustment, strengthening the national fiscal framework to ensure that regions contribute to the consolidation effort, and adopting employmentfriendly measures to address the projected growing gap between pension expenditures and social security contributions.”
Among the IMF’s suggested moves are harmonizing VAT rates and strengthening green taxation: measures that could replace a less effective banking tax that was introduced three years ago and could now be phased out.
The IMF praised Spain’s financial system and the stability of its banks. BBVA’s plan to merge with smaller rival Banco de Sabadell moved one step forward on April 30, when the National Authority for Markets and Competition (CNMC) approved the deal under certain conditions, although other authorizations are still required.
While Spain has undoubtedly been a post-Covid success story, the IMF stressed that to stay on this positive trajectory, maintaining sound fiscal and regulatory policies and avoiding missteps that could derail progress will be essential.
