Spain Surprises Europe: The Secrets Behind Its Economic Surge
By Dr. Mahmoud M. Rabbani, Director of the Sustainable Development Overseas Program

 

Spain has emerged in 2026 as one of the most dynamic economies in the European Union, with the International Monetary Fund (IMF) projecting it to record the fastest growth in the Eurozone. Despite a fragmented political landscape and the absence of an approved national budget for three consecutive years, the country has maintained steady momentum—driven by structural reforms in the labor market, immigration management, and the energy transition under Prime Minister Pedro Sánchez’s government.

An efficient rollout of European recovery funds and remarkable resilience to external shocks have reinforced this trajectory. Spain’s appeal as a welcoming and attractive destination for tourism has also played a role. Together, these factors have led to higher wages and pensions at the lower end of the scale, fueling stronger domestic consumption and, consequently, sustained GDP growth.

What makes this performance remarkable is that it has unfolded amid political instability. The coalition government between the Socialist Party (PSOE) and Sumar, with the external backing of centrist and left-wing nationalist groups, has failed to pass a budget law in three years. Yet this lack of a parliamentary majority has not paralyzed the economy. The government has skillfully extended and adapted annual accounts, prioritizing social welfare and infrastructure investment. Rising GDP has boosted tax revenues and reduced the deficit—developments welcomed by credit rating agencies, financial markets, and the European Commission alike.

Among Europe’s major economies, Spain stands out as the only one keeping pace with the United States. Growth projections hover around 2.8% for 2025, following 3.5% in 2024 and 2.5% in 2023. The country created another half a million jobs in 2025 for the fourth year running and has raised the minimum wage by 61% since 2018. Between 2018 and 2026, the minimum wage will have climbed by 66%, from €735.9 to €1,221 a month—a striking achievement that has caught Europe’s attention.

The 2021 labor reform, aimed at curbing the abuse of temporary contracts, has encouraged more permanent employment while allowing flexibility for firms in difficulty. The higher minimum wage has had minimal negative impact on employment, as only about 7% of workers are directly affected. Spain remains attractive for investors and professionals alike, offering a high quality of life, solid vocational training, and a secure environment. Rising wages have encouraged broader participation in the labor market and boosted household spending.

Labor market dynamism has been reinforced by an open immigration policy toward Latin America and a balanced approach toward Africa. Financially, immigration has proven less costly than in other European countries, thanks to faster work permit procedures. Immigrants provide essential labor in sectors such as construction, elder care, and agriculture without displacing local workers. Efforts to integrate undocumented migrants through training and regularization programs could further enhance these benefits—a direction supported by recent agreements between the government and Podemos.

Another key factor behind Spain’s competitiveness is its electricity prices, which are roughly 17% lower than in France and significantly below those in Germany or the United Kingdom. Spain is now reaping the rewards of a long-term energy strategy focused on diversifying renewable sources—solar, wind, and hydro—and investing in energy storage. This policy has laid the foundation for a robust and sustainable industrial base.

Spain’s economic performance has also benefited from favorable conditions. In the aftermath of the COVID-19 pandemic, the country has strengthened its status as one of the world’s top tourist destinations. Its limited exposure to external shocks—given its relatively low dependence on China, the United States, or Russia—has further bolstered stability. On top of that, the efficient management of EU recovery funds under the NextGenerationEU plan has fueled investment in renewable energy and the modernization of technology and digital sectors. This approach has helped position Spain in the global technological race, with companies such as Indra and Amadeus at the forefront.

The challenge now lies in ensuring that overall GDP growth translates into higher income per capita, particularly for young people, by tackling issues such as housing affordability and the rising cost of living. It will also be essential to maintain effective policies to mitigate the impact of climate change, especially concerning water scarcity and flooding, agriculture, and forest fires. Finally, Spain must continue to strengthen mechanisms for transparency and anti-corruption, preventing scandals—from illicit commissions to workplace misconduct—that could undermine trust in institutions and damage the credibility of its governance model.

Spain’s great task in the coming years is to continue adapting to change, seizing every investment opportunity, and fostering innovation to keep surprising Europe with sustained, fair, and inclusive growth. This must be a kind of growth that protects the most vulnerable and reinforces the country’s global “soft power,” built on an economic and social development model that many others aspire to emulate.