How Spain’s economy became the envy of Europe

That modernisation process is being aided by post-pandemic recovery funds from the EU’s Next Generation programme. Spain is due to receive up to €163bn by 2026 ($169bn; £136bn), making it the biggest recipient of these funds alongside Italy.

Spain is investing the money in the national rail system, low-emissions zones in towns and cities, as well as in the electric vehicle industry and subsidies for small businesses.

“Public spending has been high, and is responsible for approximately half our growth since the pandemic,” says María Jesús Valdemoros, lecturer in economics at Spain’s IESE Business School.

Other major European economies have seen their growth stymied by their greater reliance than Spain on industry, which, she says, “is suffering a lot at the moment due to factors such as the high cost of energy, competition from China and other Asian countries, the cost of the transition to a more sustainable environmental model and trade protectionism”.

Since Covid, the other major economic challenge for Spain has been the cost-of-living crisis triggered by supply-chain bottlenecks and the Russian invasion of Ukraine in 2022. Inflation peaked at an annual rate of 11% in July of that year, with energy prices hitting Spaniards particularly hard, but by the end of 2024 it had fallen back to 2.8%., external

Madrid believes that subsidies it introduced to cut the cost of fuel consumption and encourage public transport use were key in mitigating the impact of the energy price rises, as well as several increases to the minimum wage.

At the height of the European energy crisis, Spain and Portugal also negotiated with Brussels a so-called “Iberian exception”, allowing them to cap the price of gas used to generate electricity in order to reduce consumers’ bills.

Mr Cuerpo argues that such measures have helped counter Spain’s traditional vulnerability to economic turmoil.

“Spain is proving to be more resilient to successive shocks – including the inflation shock that came with the war in Ukraine,” he said. “And I think this is part of the overall protective shield that we have put in place for our consumers and for our firms.”