Today’s edition is powered by European DIGITAL SME Alliance
Shape Europe’s tech sovereignty at the DIGITAL SME summit
Join the conversation with policymakers and industry leaders on the latest tech developments for SMEs. Connect, share ideas, and be part of a community driving homegrown innovation towards a more independent and globally competitive digital future.
——————————————————————————————–
There are many misconceptions about Spain. Most Spaniards, for instance, never take siestas. Sangria is not the country’s favourite drink. And almost no one regularly attends bullfights.
Arguably the biggest misconception of all – one which many newspapers, politicians, and even economists have recently fallen victim to – is that Spain’s economy, the EU’s fourth-largest, is “booming”. According to numerous key metrics, including productivity growth, unemployment, and (most tellingly) surveys of the country’s actual citizens, it isn’t.
But that’s not what the most commonly used economic measure says. In fact, the scores of articles hailing Spain’s “miracle” economy are overwhelmingly based on the fact that the country’s GDP – the total value of its produced goods and services – is rapidly increasing.
Compared to other EU countries, it is true that Spain’s GDP growth has been extraordinario in recent years. CaixaBank, the country’s largest domestic lender, reported earlier this week that Spain’s output has risen 10% since 2019, well above the eurozone average of 6.4% and a whopping one hundred times more than Germany’s anaemic 0.1% expansion.
The swift growth also shows little sign of subsiding. Earlier this month, the European Commission and the Bank of Spain both hiked their Spanish growth forecasts for this year to 2.9% – more than double the EU’s 1.4% average projected expansion. “Real GDP growth is expected to remain strong in 2025,” the Commission noted, adding that “economic activity” is also expected to “remain robust” until 2027.
But as José Boscá, an economist at the FEDEA think tank in Madrid, points out, Spain’s GDP data “is not so promising” when adjusted for its population growth, which has also swelled in recent years. “If we only assess economic growth based on GDP data, there are factors that we are not taking into consideration,” Boscá said.
Indeed, Spain’s GDP growth is largely a direct consequence of its growing population. Soaring immigration – especially from Latin America – has caused Spain’s overall population to surge in recent years, and, predictably, has also caused its total output and consumption to rise.
According to the Elcano Royal Institute, the country’s immigrant population has risen by roughly 600,000 people per year since the end of the pandemic, pushing its population to a record high of just under 50 million. Roughly one in five people now living in Spain were born abroad.
In addition to boosting net output, the influx of workers has boosted government revenue and, by tempering wage rises, has helped keep inflation barely a fraction above the European Central Bank’s 2% target rate.
But it has also exacerbated Spain’s chronic shortage of affordable housing and compounded the country’s cost-of-living crisis – especially for young people, the vast majority of whom still live with their parents and a quarter of whom are currently unemployed. According to the latest available data from Eurostat, the average Spaniard only leaves home at the age of 30: well above the bloc’s average of 26.
The wave of immigration has also made it increasingly difficult for Spain to reduce its overall rate of joblessness, which at 10.45% remains the highest in the EU. Nine in ten jobs created between January 2024 and March 2025 were filled by foreign workers, the Elcano Institute notes. Many Spaniards who are employed have seen tepid real wage growth for decades, constricting their buying power – and in many cases their motivation.
Such factors explain why Spain’s economic “miracle” is overwhelmingly not being felt by its citizens. A recent poll by the Funcas research centre revealed that 55% of Spaniards think that the economic situation is worse than before the pandemic, while 90% believe they have lost purchasing power.
Luz at the end of the tunnel?
Immigration is not the sole reason for Spain’s rapid growth rate. A surge in post-pandemic tourism is also a major factor, as is the country’s broader shift toward high-value-added service sectors, including real estate, finance, and IT.
“It’s not just tourism, it’s also non-tourism services,” Finance Minister Carlos Cuerpo told CNBC earlier this year. The fact that Spain’s €100 billion in annual non-tourism export services now exceeds its €95 billion in tourism exports also underscores the “modernisation of the Spanish economy,” he said.
Foreign investors, including Chinese battery manufacturer CATL and auto giant Stellantis, have been drawn by Spain’s relatively cheap energy, with the country’s bountiful sunlight increasingly being harnessed by manufacturers through investments in solar power.
Payouts from the EU’s pandemic recovery fund have also contributed. Madrid is on course to receive a total of €163 billion in grants and loans from Brussels by the end of next year: the second-highest amount in the bloc, after Italy.
But profound structural obstacles remain. These include high government debt-to-GDP levels inherited from the eurozone crisis and pandemic; widespread unemployment; and political instability partly engendered by Prime Minister Pedro Sánchez’s minority government, which has been mired in corruption scandals involving his inner circle. Due to the political dysfunction, Spain hasn’t managed to pass a new budget since 2022, forcing the government to rollover the 2023 budget, even as its booming population and robust tax revenues have created a new reality in the country.
That said, not even a new budget would address Spain’s biggest problem: low productivity. Boscá noted that this is largely a result of the composition of Spain’s industrial sector, where 99.8% of firms are small and medium-sized enterprises consisting of fewer than 10 employees. This industrial landscape inevitably curtails productivity growth and domestic investment.
“Spain is relying entirely on economic cycles,” said Judith Arnal, senior researcher at Elcano and an independent adviser to the Bank of Spain. “And reforms need to be urgently implemented whilst the economy is doing well.”
Moreover, as the Commission’s report this earlier this month noted, Spain’s economy – although less exposed than other EU countries are to trade disruptions from the US and China – is still heavily dependent on tourism from other exporting nations, such as Germany, which are vulnerable.
Furthermore, Brussels warned, “a more-pronounced-than-anticipated slowdown of migration flows could reduce the dynamism of the labour market, resulting in a less favourable outlook for private consumption and investment.”
Spain, in short, is growing – just not in the way many headlines suggest. Strip out the population surge and the picture looks far less miraculous. And unless productivity finally stirs, the boom will remain more statistical than real. For a country long burdened by clichés, it may turn out that the greatest misconception of all wasn’t about siestas or sangria, but about the strength of its comeback.
Economy News Roundup
EU plunges ahead with Ukraine loan as Belgium ‘pleads’ for alternatives. The European Commission vowed to continue trying to harness Russian assets to fund a “reparations loan” to Ukraine on Friday, despite Belgium’s exhortations that the EU seek alternatives to the €185 billion cash scheme. Read more.
EU economy chief urges G7 to speed up $50 billion Ukraine loan. In an exclusive interview with Euractiv, Economy Commissioner Valdis Dombrovskis said Western partners should frontload disbursements from the loan, agreed in June last year, to plug the war-torn country’s looming financial black hole early next year. Read more.
EXCLUSIVE: EU economy chief urges G7 to speed up $50 billion Ukraine loan
The European Commission is calling on Western allies to accelerate payments from a $50 billion…
4 minutes
Belgium slams EU plan to fund Ukraine with Russian assets. In a four-page letter to European Commission President Ursula von der Leyen on Thursday, seen by Euractiv, Belgian Prime Minister Bart De Wever said the reparations loan could prompt investors to sell EU debt or pull funds out of Euroclear and other European institutions, “amplifying systemic risks” and potentially destabilising the euro. Read more.
EU ‘ready’ to propose Russian assets loan despite Belgian doubts. Ursula von der Leyen suggested on Wednesday that the European Commission is poised to table a legal proposal for the so-called “reparations loan”. “The next step is that the Commission is ready to present the legal text,” the Commission president said in a speech at the European Parliament in Strasbourg. Read more.
Brussels rebukes Finland for breaching EU budget rules. The European Commission formally reprimanded Helsinki for contravening the EU’s 3% fiscal limit on Tuesday, as weak consumption and geopolitical uncertainty stoked by Russia’s war in Ukraine compound the Nordic country’s gloomy economic outlook. The move came just a week after Brussels predicted Finland’s deficit would surge to 4.5% of annual GDP this year – well above the 3.7% shortfall projected in May. Read more.
Brussels rebukes Finland for breaching EU budget rules
The European Commission formally reprimanded Finland for contravening the EU’s fiscal rules on Tuesday, as…
3 minutes
Europe must ‘step up its game’ on China, says EU industry chief. In an address to the European Parliament on Tuesday, Stéphane Séjourné said Beijing’s export controls on rare earths have “directly targeted” Europe, and stressed that the bloc must “redouble [its] efforts” to break its strategic dependence on the world’s second-largest economy. Read more.
EU urges Belgium to relent on using Russian assets amid peace ‘momentum’. The publication of a 28-point Russian-American peace proposal last week has made the EU’s plan to fashion the reparation loan “even more urgent”, European Commission chief spokesperson Paula Pinho said on Monday. Read more.
Washington says EU must slash levies on US exports before getting tariff relief. Speaking after meeting his European counterparts in Brussels on Monday, US trade chief Jamieson Greer said Washington wouldn’t exempt EU goods from a blanket 15% US tariff until Brussels implemented its part of the joint EU-US statement agreed this summer. “It’s really hard to move on to other things or to a broader cross section of the economy before we fully implement the first part of the agreement,” Greer said. Read more.