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Arguably the biggest misconception of all [about Spain]... is that Spain’s economy, the EU’s fourth-largest, is “booming”. According to numerous key metrics, including productivity growth, unemployment, and (most tellingly) surveys of the country’s actual citizens, it isn’t.
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Compared to other EU countries, it is true that Spain’s GDP growth has been extraordinario in recent years. CaixaBank, the country’s largest domestic lender, reported earlier this week that Spain’s output has risen 10% since 2019, well above the eurozone average of 6.4% and a whopping one hundred times more than Germany’s anaemic 0.1% expansion.
The swift growth also shows little sign of subsiding. Earlier this month, the European Commission and the Bank of Spain both hiked their Spanish growth forecasts for this year to 2.9% – more than double the EU’s 1.4% average projected expansion. “Real GDP growth is expected to remain strong in 2025,” the Commission noted, adding that “economic activity” is also expected to “remain robust” until 2027.
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But as José Boscá, an economist at the FEDEA think tank in Madrid, points out, Spain’s GDP data “is not so promising” when adjusted for its population growth, which has also swelled in recent years. “If we only assess economic growth based on GDP data, there are factors that we are not taking into consideration,” Boscá said.
Indeed, Spain’s GDP growth is largely a direct consequence of its growing population. Soaring immigration – especially from Latin America – has caused Spain’s overall population to surge in recent years, and, predictably, has also caused its total output and consumption to rise.
According to the Elcano Royal Institute, the country’s immigrant population has risen by roughly 600,000 people per year since the end of the pandemic, pushing its population to a record high of just under 50 million. Roughly one in five people now living in Spain were born abroad.
In addition to boosting net output, the influx of workers has boosted government revenue and, by tempering wage rises, has helped keep inflation barely a fraction above the European Central Bank’s 2% target rate.
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But it has also exacerbated Spain’s chronic shortage of affordable housing and compounded the country’s cost-of-living crisis – especially for young people, the vast majority of whom still live with their parents and a quarter of whom are currently unemployed. According to the latest available data from Eurostat, the average Spaniard only leaves home at the age of 30: well above the bloc’s average of 26.
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Profound structural obstacles remain. These include high government debt-to-GDP levels inherited from the eurozone crisis and pandemic; widespread unemployment; and political instability partly engendered by Prime Minister Pedro Sánchez’s minority government, which has been mired in corruption scandals involving his inner circle. Due to the political dysfunction, Spain hasn’t managed to pass a new budget since 2022, forcing the government to rollover the 2023 budget, even as its booming population and robust tax revenues have created a new reality in the country.
That said, not even a new budget would address Spain’s biggest problem: low productivity. Boscá noted that this is largely a result of the composition of Spain’s industrial sector, where 99.8% of firms are small and medium-sized enterprises consisting of fewer than 10 employees. This industrial landscape inevitably curtails productivity growth and domestic investment.
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Spain, in short, is growing – just not in the way many headlines suggest. Strip out the population surge and the picture looks far less miraculous. And unless productivity finally stirs, the boom will remain more statistical than real. For a country long burdened by clichés, it may turn out that the greatest misconception of all wasn’t about siestas or sangria, but about the strength of its comeback.
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Maybe we'll see a future of several global trade blocs with Cold War-like trade restrictions for dual-use goods between these blocs, accompanied by a tit-for-tat trade rather than deeper trade agreements?
Maybe the EU will have some free trade agreements (Canada, Australia, New Zealand, Japan, South Korean,and maybe some countries in Asia, Africa, and Latin America like the Mercosur members), and more tit-for-tat trade with all others?
Not necessarily 'de-coupling' but 'de-risking.' For Europe this would definitely mean EV, solar panels, cloud infrastructure, and other critical products will be made in Europe?
If this is the way, it will be not easy for Europe, but a disaster for China and the US in the long run as they rely heavily on Europe in their product trade and service industries, respectively.
Just my 2 cents.