On a crisp mid-winter afternoon in Segovia, central Spain, tourists gather at the base of the city’s iconic Roman aqueduct, admiring its renowned arches and capturing selfies.
While many visitors are Spanish, the crowd also includes Europeans, Asians, and Latin Americans, all drawn to Segovia’s historical allure, exquisite cuisine, and dramatic location just beyond the mountains north of Madrid.
“There was a moment during Covid when I thought ‘maybe tourism will never, ever be like it was before’,” says Elena Mirón, a local guide wearing a vibrant fuchsia beret as she prepares to lead a tour group through the city.
“But now things are very good and I feel this year is going to be a good year, like 2023 and 2024. I’m happy, because I can live off this job I love.”
Tourism Surge Fuels Economic Growth
Spain welcomed a record-breaking 94 million tourists in 2024, positioning itself as a contender against France, which hosted 100 million, for the title of the world’s leading foreign tourism destination.
The tourism sector’s post-pandemic resurgence has played a pivotal role in Spain’s economic expansion, allowing the eurozone’s fourth-largest economy to outperform Germany, France, Italy, and the United Kingdom.
Spain’s GDP grew by 3.2% in 2024, a stark contrast to Germany’s 0.2% contraction and modest growth rates of 1.1% in France, 0.5% in Italy, and an expected 0.9% in the UK.
This robust economic performance contributed to The Economist ranking Spain as the world’s best-performing economy.
“The Spanish model is successful because it is a balanced model, and this is what guarantees the sustainability of growth,” says Carlos Cuerpo, the business minister in Spain’s Socialist-led coalition government, emphasizing that Spain accounted for 40% of eurozone growth last year.
While acknowledging tourism’s impact, Mr. Cuerpo also credits financial services, technology, and investment as key drivers of Spain’s recovery from the pandemic’s economic downturn, when GDP plummeted by 11% in a single year.
“We are getting out of Covid without scars and by modernising our economy and therefore lifting our potential GDP growth,” he adds.
EU Recovery Funds and Modernization Efforts
Spain’s economic modernization has been significantly bolstered by EU post-pandemic recovery funds from the Next Generation program. By 2026, Spain is set to receive up to €163bn ($169bn; £136bn), making it the largest recipient alongside Italy.
The government is channeling these funds into projects such as enhancing the national rail network, developing low-emission zones in urban areas, expanding the electric vehicle industry, and offering subsidies to small businesses.
“Public spending has been high, and is responsible for approximately half our growth since the pandemic,” notes María Jesús Valdemoros, an economics lecturer at Spain’s IESE Business School.
In contrast, other major European economies—more reliant on industry—have struggled with challenges such as high energy costs, competition from China and other Asian markets, the financial burden of transitioning to sustainable energy, and trade protectionism.
Inflation, Energy Prices, and Resilience
Since Covid, Spain has also faced the cost-of-living crisis, largely fueled by supply-chain disruptions and Russia’s 2022 invasion of Ukraine. Inflation spiked to 11% in July 2022, hitting Spaniards particularly hard with soaring energy costs. However, by the end of 2024, inflation had eased to 2.8%.
Madrid attributes this improvement to measures such as subsidies aimed at reducing fuel costs and promoting public transport, alongside multiple minimum wage increases.
During the peak of Europe’s energy crisis, Spain and Portugal secured an agreement with Brussels—the “Iberian exception”—allowing them to cap gas prices used for electricity generation, effectively lowering consumer energy bills.
Thriving Tourism and Cost Saving in SpainAccording to Mr. Cuerpo, these policies have reinforced Spain’s economic resilience.
“Spain is proving to be more resilient to successive shocks – including the inflation shock that came with the war in Ukraine,” he says. “And I think this is part of the overall protective shield that we have put in place for our consumers and for our firms.”
Spain’s strong focus on green energy has also played a critical role in its economic stability and investment appeal. With the second-largest renewable energy infrastructure in the EU, the country benefits not only from a reliable electricity supply but also from growing investor interest.
Wayne Griffiths, the British-born CEO of Seat and Cupra, highlights this advantage for Spain’s automobile sector, the second-largest in Europe. Although the country lags behind others in electric vehicle production, Griffiths sees immense potential.
“[In Spain] we have all the factors you need to be successful: competitive, well-trained people and also an energy policy behind that,” he states. “There’s no point in making zero-emission cars if you’re using dirty energy.”
Employment Gains and Labour Market Shifts
Despite these strengths, Spain continues to grapple with persistently high unemployment—the highest in the EU and nearly double the bloc’s average. However, the jobless rate declined to 10.6% by late 2024, its lowest level since 2008.
At the same time, employment has reached a record high of 22 million people, with labour market reforms promoting job stability playing a crucial role in this improvement.
These reforms have tightened restrictions on temporary contracts while encouraging the use of more flexible permanent contracts, reducing temporary employment without stifling job creation.
Additionally, while immigration remains a contentious political issue, many experts argue that integrating immigrants into the workforce is essential for counteracting Spain’s rapidly aging population.
Socialist Prime Minister Pedro Sánchez has strongly defended immigration, calling it “fundamental” to Spain’s economy.
Future Challenges: Debt, Housing, and Tourism Backlash
The European Commission expects Spain to continue leading growth among the EU’s largest economies in 2025, but significant hurdles remain.
One key concern is the nation’s heavy dependence on tourism, which has sparked growing discontent among locals. Protests against overtourism have erupted from the Canary Islands to Majorca.
Another pressing issue is Spain’s mounting public debt, which now exceeds the country’s annual economic output.
“This is an imbalance that we need to correct, not just because the EU’s new fiscal norms demand it, but because it could cause financial instability,” warns Valdemoros.
Additionally, a housing crisis is worsening, with millions struggling to afford decent accommodation.
Spain’s deeply polarized political climate makes it challenging for Sánchez’s minority government to tackle these issues effectively. However, despite looming uncertainties, the country continues to solidify its position as the driving force of European economic growth.