Socialist Spain’s welcoming and liberal approach to immigration is paying economic dividends.
Spain’s economy is outpacing its European neighbours, with GDP expected to grow by 2.5 percent this year, far surpassing the economies of Italy, France and Germany, which are poised to expand 0.7 percent, 0.6 percent and 0 percent respectively. Meanwhile, in the UK, where a summer of anti-migrant protests and nationalist flag-flying has dominated the headlines of predominantly anti-immigration newspapers, the EY ITEM Club Summer Forecast predicts economic growth of 1% in 2025, up from the 0.8% projected in April’s spring forecast.
So, what’s driving this exceptional growth in a Spain, which is governed by a left-wing coalition under socialist prime minister Pedro Sánchez?
A key and often underappreciated factor is immigration.
While much of Europe tightens its borders, Spain is doing the opposite. It plans to welcome nearly a million new migrants over the next three years through expanded work visa schemes and the granting of residence permits to undocumented workers. This liberal approach is paying economic dividends.
According to Miguel Cardoso, chief economist at BBVA Research, 90% of the increase in the labour force since 2021 comes from immigration.
“This is allowing the service sector to expand. This is keeping firms relatively competitive in terms of containing the increase in labour costs, and it’s allowing, for example, the prices in services to remain relatively contained in a high inflationary environment.”
Last year, most people migrating to Spain came from Colombia, Venezuela and Morocco.
“Latin American economies, some of them are not doing relatively well, so there is this push factor. There is also the fact that immigration to the United States has become more difficult, and therefore people are turning around and seeing alternatives,” added Cardoso.
Low energy costs
Immigration, however, is only one part of the story. Unlike in Britain, where energy costs have spiralled following Russia’s invasion of Ukraine in 2022, Spain has benefited from low energy costs and has seen less impact from the European energy crisis, which has been pinned on the country’s heavy investment in renewable energy.
“The increase in the renewable share in the electricity mix over the past five, six years has implied a drop of 40% in wholesale electricity prices,” Spain’s finance minister Carlos Cuerpo told CNBC.
Foreign investment is following. In 2024, Chinese-founded photovoltaic technology company Arctech opened its European headquarters in Madrid, citing Spain’s dominant position in the solar energy sector as a key factor. Photovoltaic cells convert sunlight directly into electricity. It’s a burgeoning renewable energy source that can lead to lower electricity costs.
“Spain is probably the location in Europe where the most PV has been done,” Arctech’s EU and NA Markets general manager Pedro Magalhaes told CNBC.
Tourism boom
Tourism remains a major contributor, accounting for roughly 12 percent of GDP. The sector has benefited from a post-pandemic recovery, along with Spain’s relatively affordable prices compared to other Western European nations. In 2024, the tourism workforce grew by 9.7 percent compared to the previous year, reaching nearly three million people.
But according to Cuerpo, the country is now exporting more non-tourism services, such as IT, accounting, and financial services, than tourism itself, with exports in these areas reaching €100 billion in 2024, compared to just under €95 billion in tourism.
“So that’s an element of modernisation of the Spanish economy,” said Cuerpo.
Spain’s willingness to embrace immigration stands in contrast to many of its European neighbours, where political and social resistance to immigration often blocks the kind of labour market expansion that Spain is currently benefiting from.
In the words of Finance Minister Cuerpo: “Spain is a great outlier now in terms of growth. It’s also a great place to invest.”
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