The Spanish economy grew 3.2% in 2024: Why is it outperforming peers?

Spain's Economic Surge in 2024: A Bright Spot in Europe’s Recovery

Spain’s economy has been on a remarkable upward trajectory, outpacing some of Europe’s largest economies. In 2024, the country achieved a robust 3.2% GDP growth, making it one of the fastest-growing economies in the eurozone. This stellar performance was driven by strong domestic demand, a booming tourism sector, and significant contributions from EU recovery funds, making Spain a standout success in a region struggling with slower growth.

Why Spain’s Economy is Outperforming the Eurozone

In an era of economic uncertainty, Spain has emerged as a beacon of growth. In 2024, Spain’s GDP grew at more than three times the eurozone average of just 0.9%. It outperformed larger economies like Germany, France, and Italy, all of which struggled with stagnation. This success wasn’t just a fluke; it was the result of several key factors.

1. Robust Domestic Demand

A strong domestic market has been the backbone of Spain’s economic growth. Household consumption remained resilient, increasing by 1% in 2024. Public expenditure and investment also contributed positively, adding 0.3% and 2.9% to the GDP, respectively. While Spain’s export sector lagged behind, the steady growth in domestic demand helped offset weak external trade, pushing the economy forward.

2. A Tourism Boom That Shows No Signs of Slowing Down

Tourism has long been a cornerstone of Spain’s economy, and 2024 was no different. Spain welcomed an impressive 94 million international tourists last year, marking a 10% increase from 2023. This surge in tourism shows no signs of cyclical exhaustion, and the sector is expected to continue booming in 2025. According to CaixaBank Research economist Judit Montoriol Garriga, tourism GDP is set to rise by 3.6% in real terms this year, further solidifying the sector’s role as a major contributor to Spain’s economic engine.

Tourism’s impact extends far beyond just the travel industry. It boosts retail, hospitality, and transport services, creating a ripple effect that powers the entire economy. With tourism accounting for a growing share of Spain’s GDP, it’s clear that this sector will remain one of the country’s most important growth drivers in the coming years.

3. EU Recovery Funds Fueling Growth

Spain’s recovery from the pandemic has been significantly supported by the European Union’s NextGenerationEU (NGEU) funds. By the end of 2024, Spain had awarded €47.6 billion in tenders and grants, with €14.4 billion allocated in just 2024 alone. These funds have been instrumental in bolstering Spain’s infrastructure, businesses, and economic recovery. According to a Bank of Spain survey, nearly half of Spanish firms stated they wouldn’t have made their planned investments without this EU support.

4. A Resilient Housing Market and Booming Lending Cycle

Spain’s real estate market remains buoyant, with home prices increasing by 5.8% in 2024. Housing market activity is expected to continue growing, with transaction prices set to rise by another 7.2% in 2025. This upward trend in property prices is supported by a steady increase in lending, as January 2025 data showed a surge in new credit volumes.

Outlook for 2025: Can Spain Keep Outperforming?

While Spain’s extraordinary growth rate of 3.2% in 2024 is unlikely to be repeated in 2025, the country is still poised to outperform much of the eurozone. The Organisation for Economic Co-operation and Development (OECD) projects Spain’s GDP will grow by 2.6% in 2025, significantly higher than the 1% expected for the broader eurozone. Key drivers like domestic demand, falling interest rates, rising household purchasing power, and ongoing EU recovery funds will continue to fuel Spain’s economic dynamism.

Economists also expect Spain’s tourism sector to remain a major driver of growth, with strong consumption patterns in the retail and vehicle sectors. As long as inflation remains contained and consumer confidence stays strong, Spain’s economy will likely continue its upward trajectory.

Challenges Ahead: Moderation in Growth

While Spain is expected to remain a top performer in Europe, some moderation in growth is anticipated. Economists expect the pace of expansion to slow slightly due to external factors such as global economic uncertainties and rising producer prices. Spain’s producer prices surged by 6.6% year-on-year in February 2025, indicating a potential risk that higher production costs could eventually be passed on to consumers, impacting overall growth.

However, even with these challenges, Spain’s labour market continues to tighten, with unemployment dropping to its lowest level since 2008. This robust job market provides further support for continued economic expansion in 2025.

What’s Next for Spain’s Economy?

As Spain enters 2025, all signs point to a continuation of its impressive recovery and growth story. While the pace of expansion may slow, Spain will likely remain one of the eurozone’s standout economies, driven by strong domestic demand, resilient tourism, and continued investment from European funds.

With a growing and dynamic consumer base, a booming tourism industry, and government initiatives focused on long-term economic resilience, Spain’s future looks bright. Economists expect Spain’s growth story to unfold over the coming years, with projections showing continued outperformance through 2026.

Spain’s post-pandemic recovery has proven to be one of Europe’s great success stories, and there’s no sign of that narrative slowing down anytime soon.