Spain’s Economic Miracle: Is It Built on Shifting Sands?

Spain’s economy is on fire. The numbers don’t lie. GDP growth hit 3.2% in 2024, making Spain Europe’s fastest-growing major economy. According to the Spanish government, the country posted 50% of the entire EU’s economic growth last year.

This is all, of course, great news as I wrote back at the end of 2024.

But there’s a catch that suggests we should be sober and not drink too much champagne. Elements of Spain’s current boom are the result of factors that are going to end or are precarious in nature.

Instead of resting on laurels, now is the time to consolidate momentum and lay the foundations for future growth – and I’m not entirely sure that the Spanish government is able or willing to do that.

Let’s start from the fact that the current boom rests on three pillars and their contradictions.

First is tourism. Tourism continues to bring record crowds and enormous amounts of economic growth and foreign currency. But, as we’ve seen with the demonstrations that have filled Spanish streets over the past two years, it also comes with controversy – from over-tourism to blame for the housing crisis.

The second pillar of the current growth wave is the result of EU recovery funds – but deadlines loom. The €80 billion that Spain received post-Covid must be spent by 2026. That will have a negative effect on growth.

Thirdly, and lastly, immigration has played an important role in fuelling growth in both the labour market and consumer spending. But, just as tourism and Airbnb have sparked controversy on the left, immigration is spurring the right. The anti-immigrant Vox party is growing in support, largely on the basis of this.

The Tourism Goldmine That’s Pricing Out Locals

Tourism drives Spain’s growth, outpacing the economy as a whole since prior to the Covid pandemic. In 2024, the tourism sector generated €249 billion in 2024, reaching 12.9% of GDP, according to a research paper by Caixa Bank. By 2026, they predict that tourism will reach 13.3% of GDP.

This is the result of a growth in both absolute numbers of visitors and also the amount of money being spent by each tourist. The result has been that tourism not only brings in money, it also creates jobs. The World Travel & Tourism Council estimates that tourism accounts for more than 14% of all jobs in Spain.

That has spillover effects in a number of areas, creating growth multipliers in a variety of industries. For instance, in real estate, in Malaga province fully one-third of property buyers were foreign born in 2023. For Alicante, that number was 43%. That will likely have grown slightly since 2023 as the number of foreign buyers in Spain as a whole has grown by 1.8%.

Most of that growth is concentrated in coastal and touristic regions in Spain. The pattern is well-known in the real estate industry: foreigners come to Spain for vacation, fall in love with the climate, the landscape, the food and the lifestyle. After a few trips, many will buy a property.

But that success comes at a price. Not only is tourism concentrated in particular areas of the country. It is also often concentrated in particular areas within cities. Without regulation and infrastructure investment, this easily leads to the most attractive areas of a city – such as Barcelona’s old town – becoming populated only by tourists, with locals priced out of the market.

That has contributed to rising protests and anger at “over-tourism.” And it creates a visible target for anger at other issues that are only partially related, such as the housing crisis. The result, if there isn’t proactive planning – rather than short-term political posturing – is that we kill the goose that laid the golden egg.

EU Recovery Funds: An opportunity that could be lost

Controversial or not, it seems certain that tourism will continue to play a central role in the Spanish economy for years to come. The country will continue to be beautiful, the climate spectacular and the beaches irresistible.

However, the growth will reach its limit. You can only fit so many tourists into the country and there’s only so many tourists within convenient travel distance, though who knows where those limits are?

In the meantime, a bigger question is related to a large infusion of EU Next Generation funds to Spain. The numbers involved are very large with €80 billion in grants and another €83 billion in loans, for a total of €163 billion. Santander Bank reported that by the end of 2024 Spain had executed about 70% of the grants, or €56.3 billion.

Some of this is invisible to ordinary people but a lot can be seen in infrastructure improvements. Roadwork and repair in cities across the country. Improvements and expansion to Spain’s impressive high speed rail lines. The sudden appearance of electric vehicle charging stations in parking lots and shopping malls. There are also fibre optic internet installations in smaller communities and money for digital transformation in Spanish businesses, large and small.

In spring of 2024, Caixa Bank estimated that the contribution to the Spanish GDP by these public investments would account for almost half a percentage point of growth.

However, not only is this boost to the economy coming to an end in 2026, there is concern that even what Spain has received has been poorly accounted for and had problems with corruption. The fear is that the opportunity to bring Spain fully into the 20th century and prepare it for the future will have passed.

Part of that is the result of PSOE government incompetence and corruption and they should accept the blame for that. But the lion’s share comes from the paralysis of Spanish political culture.

Sanchez has no majority in parliament and the smaller parties – and the PP – are more interested in jockeying for the next election or for sector interests, even at the expense of their constituents. The government hasn’t even been able to pass a budget since 2023.

Immigration: Spain’s Secret Growth Weapon

It is no secret that Spain has been facing demographic decline for years. Native born Spaniards are only having 1.16 babies per woman, half of what is needed for a stable population.

And the solution to this – a problem that would lead to a stagnating economy and a lack of taxes to pay for pensions and other social services – has been immigration. Around 600,000 per year arrive to Spain as immigrants, almost 1.5% of the economy, 70% from Latin America.

As the Real Instituto Elcano notes:

In 2023 there were 100,000 fewer births and 43,000 more deaths in Spain than in 2013. There have been more deaths than births every year since 2015. But for the influx of immigrants the population would have declined substantially –instead it has increased from 46.6 million to 48.6 million–.

As a result, the foreign-born population reached 18.1% by January 2024. Over 600,000 undocumented migrants gained legal status. The government plans regularizing 300,000 more annually for three years. But even this underestimates the impact of immigration on the economy as another study by the Real Instituto Elcano noted that 38% of those between 25-49 are foreign born. Immigrants now make up 23% of the employed population.

There is no denying that this has created growth. The number of employed in Spain hit 21.7 million in 2024, the highest ever. Quoting a research paper by JPMorgan, The UK newspaper The Guardian stated:

“Overall, Bank of Spain analysis suggests immigration contributed over 20% to the near 3% GDP per capita income growth during 2022-2024.”

While there have been problems with the implementation of this policy, there’s no doubt that it has led to growth. But the danger is that the failure to address the imbalances, especially the deficit in new house building, will lead to a backlash.

As with tourism, Spaniards desperate for relief may turn against their own interests – and their own neighbours. In summer 2025, the far-right Vox party said that they would deport up to 8 million immigrants. They were later forced to backtrack but it speaks to the dangers when problems are left unaddressed.

Housing: Between boom and crisis

There is a direct relationship between at least two of these elements and the current boom in prices and sales in the Spanish housing market; immigration and tourism. The build-out of infrastructure and possibly direct aid to builders may also impact the real estate market but in an indirect way. Even tourism, as I noted above, is an indirect impulse towards home buyers.

Spain’s housing market is feeling the impact of the current boom. Prices surged 7.05% in Q4 2024, reaching €1,972 per square meter, according to stats in a report by Global Property Guide. They go on to note that this is “the sharpest annual increase since recordkeeping began in 2007.”

I wrote last year – and since – that the fundamental cause of this rapid price growth is not a speculative frenzy, like we saw in the lead up to the banking crisis in 2008. It is caused by a lack of construction of new homes, leading to a supply deficit.

The good news is that the market is beginning to catch up to the demand. According to a Caixa Bank research paper on the Spanish housing market:

“For instance, the number of new construction permits increased by 16.7% in 2024 and reached 127,700 homes, representing an increase of some 18,000 permits compared to the previous year. On the other hand, construction completion certificates, which tend to following the trend in new construction permits with a delay of around 18-24 months, also show a slight improvement (98,000 homes completed in 2024, 11.7% more than in 2023) and are expected to steadily increase.”

Beyond Tourism: Spain’s Hidden Strengths

There are other reasons for optimism beyond the revival in new home construction. And it is worth ending on this good news because we are in a good place with a lot of potential.

For instance, in 2024 the Spanish pharmaceutical sector ranked sixth globally and third in Europe for growth markets. Spain is a global leader in renewable and clean energy, ranking number one in investment in the Power Purchase Agreement market. It is number 2 in Europe for installed renewable energy, heading for 80% renewable electricity by 2030.

Spain is also seeing dramatic growth in non-tourism industries and is viewed as an attractive destination for investment both from within the EU and from places like China, which is investing €11 billion.

Foreign direct investment totaled €36.8 billion in 2024 according to the US State Department. Foreign investment now represents 41% of GDP, up 33% since 2018.

The investment surge spans sectors. Real estate attracts foreign buyers. Financial services draw institutional money. Manufacturing facilities expand. Technology companies establish hubs. This capital inflow fuels job creation and economic modernization.

Taking the high and long view, there’s good reasons to be optimistic about Spain’s economic future over the next several years. And there’s even good reasons for optimism when it comes to those problem areas, like housing.

That doesn’t mean we should just cheerlead or be pollyanna about the state of things. There are real challenges, especially the dysfunctional political culture and the desire of politicians to play to their base rather than trade in real solutions. If Spain can navigate between these hazards and push on its strengths, we could see more years of boom and strong markets, including in real estate.

 

By Adam Neale | Property News | October 14th, 2025

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