Hint: it sees benefits in immigration and green energy
Spain’s economy was the fastest growing in the rich world last year. Its 3.2 per cent GDP growth was higher than America’s, three times the UK’s, and four times the EU average.
So what? It’s an unexpected success story worth paying attention to as a reminder of the benefits of long-term decision-making in favour of relatively open immigration policies and investment in green energy.
Besides growing its economy last year
- Spain’s unemployment rate fell to 10.6 per cent – its lowest level since 2008.
- Inflation fell to 2.8 per cent – down from 8.3 in 2022.
- And the price of electricity was among Europe’s lowest.
“If you had told me five years ago that five years later we were going to see this kind of growth, I wouldn't have believed it,” says Miguel Cardoso, an economist at BBVA Research.
By contrast, Germany’s economy contracted by 0.2 per cent and its Federal Employment Agency says the country needs almost half a million immigrant workers to fill labour shortages in the next decade. Despite this, anti-immigration rhetoric dominates political campaigning as Sunday’s election approaches.
More tourists. Record numbers of tourists visited Spain last year (94 million against a local population of 48 million), bouncing the industry back from its pandemic low.
Exports of non-tourism services also increased and now contribute seven per cent of GDP (from 5.5 per cent pre-pandemic) – with an emphasis on high value-added sectors like information, communication and technology, banking and professional services.
Higher demand for these services is partly explained by relatively low labour costs, which Cardoso says are in turn partly a result of increased levels of immigration.
More immigrants, he argues, have also made it possible for the economy to expand and absorb larger volumes of tourists.
- Since 2019, Spain’s foreign-born workforce has grown by around 1.2 million, mostly from Latin America.
- Foreign-born immigrants filled around two-thirds of the 660,000 new jobs created annually, plugging gaps left by an aging population with one of the lowest birthrates in Europe.
Prime Minister Pedro Sánchez has defended immigration as crucial for prosperity. His government has adopted reforms to facilitate migrants’ integration by making it easier to gain legal residence, work permits, family reunification visas and – for asylum seekers – humanitarian residence permits. Labour market reforms have meanwhile made it easier for employees to renegotiate contracts and encouraged employers to take on more permanent staff.
More renewables. The government has proposed measures to boost green energy, building on its abolition of a “sun tax” that levied surcharges on solar power. Almost 60 per cent of Spain's electricity came from renewable sources last year, lowering prices by 20 per cent compared with a low-renewables counterfactual.
At the height of the European energy crisis, Spain and Portugal also negotiated with the EU an "Iberian exception", which allowed them to cap gas prices for the power sector, leading to lower electricity prices for some consumers.
Some problems. Tourism and immigration are bidding up house prices. Housing supply is not matching the demands of a growing population – and planning rules for new builds don’t encourage the supply of new rentals.
- This has fueled anti-tourism sentiment and protests in coastal cities and islands.
- Relatively low levels of investment may limit Spain’s ability to continue generating growth.
- And Sánchez's minority government may struggle to sustain political support.
But the European Commission forecasts that Spain will continue to lead growth among Europe’s big economies this year.
What’s more… in the US too – despite the political noise – higher levels of immigration contributed to job growth and productivity in 2024 and are expected to boost GDP by $8.9 trillion in the next ten years, according to the Congressional Budget Office.
