Spain’s post-pandemic recovery is fueling economic growth, with tourism, green energy, and modernisation driving the country forward—but issues like high unemployment and public debt threaten its long-term stability.
On a crisp mid-winter afternoon in Segovia, Spain, tourists gather at the foot of the city’s Roman aqueduct, admiring its iconic arches and snapping selfies. The crowd is a blend of Spanish visitors and international tourists from across Europe, Asia, and Latin America, all drawn to Segovia’s historic allure, its world-renowned gastronomy, and its stunning location at the foot of the mountains just north of Madrid.
For Elena Mirón, a local guide wearing a bright fuchsia beret, tourism in Segovia represents more than just a job—it’s a return to normalcy after the challenges of the COVID-19 pandemic. “There was a moment during Covid when I thought ‘maybe tourism will never, ever be like it was before,’” she reflects. “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.”
Spain’s tourism sector has indeed seen a dramatic rebound. In 2024, the country welcomed a record 94 million visitors, narrowly trailing France, which saw 100 million. This resurgence in tourism is a key factor in Spain’s post-pandemic economic boom, helping to fuel growth in its GDP, which increased by 3.2% in 2024. By contrast, other major European economies like Germany, France, Italy, and the UK have experienced sluggish or even negative growth, with Germany’s economy shrinking by 0.2%.
Spain’s economic recovery has been strong enough to earn it the title of the best-performing economy in the world, according to The Economist. Carlos Cuerpo, Spain’s business minister, attributes this success to a well-balanced economic model that promotes sustainable growth. “The Spanish model is successful because it is a balanced model, and this is what guarantees the sustainability of growth,” Cuerpo says. In fact, Spain contributed to 40% of eurozone growth in the past year.
However, while tourism is a driving force behind Spain’s recovery, it is not the only factor. Spain has been diversifying its economy, with key investments in technology, financial services, and green energy. The country is also receiving significant support from the European Union’s Next Generation programme, which is funneling up to €163 billion into Spain’s economy by 2026. These funds are being invested in infrastructure, including the national rail system, low-emissions zones in cities, and the electric vehicle industry.
“The Spanish economy has modernized rapidly,” says María Jesús Valdemoros, an economics lecturer at IESE Business School in Madrid. “Public spending has been high, and is responsible for approximately half our growth since the pandemic.” At the same time, other major European economies are facing challenges due to their greater reliance on industry, which has been hit hard by factors such as rising energy costs, competition from China, and the environmental transition.
Despite its recovery, Spain continues to grapple with significant economic challenges, particularly the cost-of-living crisis. The supply-chain disruptions caused by the COVID-19 pandemic and the fallout from the Russian invasion of Ukraine have contributed to soaring energy prices. In mid-2022, inflation reached 11%, but by the end of 2024, it had fallen to a more manageable 2.8%. Government measures, such as subsidies to reduce fuel costs and incentives for public transport use, have helped ease the burden on consumers. In addition, Spain negotiated the “Iberian exception” with the European Union, capping the price of gas used to generate electricity to help reduce consumer bills.
Despite these challenges, Cuerpo argues that Spain has proven resilient to successive economic shocks, including the inflation crisis brought on by the war in Ukraine. “Spain is proving to be more resilient to successive shocks,” 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 green energy sector has also played a pivotal role in ensuring the country’s energy independence and fostering investment. With the second-largest renewable energy infrastructure in the EU, Spain is positioning itself as a leader in the green energy transition. This is particularly important for the automotive industry, with Spain being Europe’s second-largest car producer. Although the country’s electric vehicle (EV) production lags behind other European nations, Wayne Griffiths, CEO of Seat and Cupra, sees huge potential for Spain to grow in this sector. “We have all the factors you need to be successful: competitive, well-trained people and also an energy policy behind that,” Griffiths explains. “There’s no point in making zero-emission cars if you’re using dirty energy.”
However, one persistent weakness in Spain’s economy has been its high unemployment rate, which remains the highest in the EU and nearly double the bloc’s average. While the jobless rate remained elevated for much of the pandemic, the situation has started to improve. By the final quarter of 2024, the unemployment rate had dropped to 10.6%, its lowest level since 2008. This improvement has been partly driven by a labor reform designed to reduce reliance on temporary contracts and promote permanent, stable employment. As a result, Spain now has a record 22 million people in employment.
The ongoing influx of immigrants is also seen as an essential factor in addressing Spain’s demographic challenges. Prime Minister Pedro Sánchez has been vocal in emphasizing the economic benefits of immigration, describing immigrants’ contribution as “fundamental” to the country’s future.
Looking ahead, Spain faces several key challenges, including its heavy reliance on tourism and the political backlash that has sparked debates over the industry’s impact on local communities. Public debt remains a concern, as it is higher than Spain’s annual economic output. Economists like María Jesús Valdemoros warn that this debt imbalance needs to be addressed, not just to meet the EU’s fiscal demands, but to avoid potential financial instability.
Additionally, Spain is facing a housing crisis, with millions of people struggling to find affordable accommodation. Tackling this issue will be a significant challenge for Sánchez’s minority government, especially with the country’s political landscape becoming more polarized.
Despite these challenges, Spain remains a leader in European growth. The government’s focus on modernizing the economy, diversifying industries, and fostering innovation positions the country well for the future—if it can effectively address its structural issues and maintain its growth momentum. For now, Spain enjoys the status of Europe’s economic engine, but its long-term success will depend on how it manages these pressing challenges.
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