The economic turnaround in Europe’s south since the dark days of the last decade’s sovereign debt crisis is well-known. Yet Spain’s growth boom is still hitting new milestones. Annual gross domestic product recently vaulted past South Korea to join the $2 trillion club. Its growth is outpacing the G7’s and unemployment is at its lowest since Jan. 2008.Should we start to worry? After all, the last time the country’s prospects were this sunny, it was due to an unsustainable property bubble that burst with dramatic consequences.
The fiesta looks less fragile this time. If Spain expects 2.6% growth this year, on par with the kind of frothy artificial intelligence-fuelled gain forecast for Korea, it isn’t because of one overheated sector (Spain’s top exports are cars and agrifoods, not technology). The driver is instead population growth via immigrant labour, the country going against the grain of more nativist trends elsewhere with measures such as mass regularisation, granting residency permits to more than 1 million undocumented arrivals.
Spain’s population has jumped to almost 50 million from 36 million a half century ago, the biggest percentage rise among the top five European Union nations, according to William Chislett of the Real Instituto Elcano think tank. This means more workers, more spending and more tax receipts.About 80% of Spanish job growth since 2022 is down to the increase in foreign-born hires, says BBVA economist Rafael Domenech. The other boon is tourism, which accounts for almost 13% of the economy and has broken records this year as travellers avoid the war-torn Middle East. The buena onda (good vibes) will keep attracting inflatable-toting beachgoers, although EU border delays and sweltering heat will be challenges. Crucially, all of this rising demand has been absorbed without creating runaway inflation. A renewables-heavy power grid is helping to shield consumers from the Iran war’s energy shock.This is all positive stuff, especially for a euro area desperate for growth as its Franco-German economic engine stalls. It’s a rare thing in Europe to hear people talk about mass immigration as a blessing, but that’s how some Spaniards describe the recent influx from Latin America.The country’s advantages also seem a little less speculative than, say, the AI semiconductor bottlenecks that are fuelling Korea’s economy and supercharging the share prices of its chipmakers. Robust GDP has made it easier for Prime Minister Pedro Sanchez’s minority government to resist US President Donald Trump’s bouts of bullying, even though Madrid’s free-riding on NATO spending and softer line on accepting Chinese investment don’t always go down well with fellow European capitals.
But just how sustainable is this in the long term? Strains on resources such as housing are already visible, which suggests immigration intensity may need to lessen. El País describes Spain as a country of 50 million with infrastructure for 40 million. Public investment was below 3% of GDP last year, worse than the EU average, and many Spanish households feel worse off than in 2022.Even if a Brexit-style backlash hasn’t taken place, anti-immigration party Vox has gained seats in regional elections and could help bring the right back into power. The pressure to spend more to fix structural problems will rise just as the curtain falls on the EU’s generous pandemic funds. Spain has been the second-largest beneficiary, and it has a 2026 end-of-summer deadline to make its final requests for money.This is where an economy like South Korea’s has the edge. The Asian country has been able to lift productivity, getting more out of a workforce on a per-hour basis, and Madrid will need to pull that same lever eventually. Spanish ministers talk of a “profound” shift in the economy in recent years, including the birth of the kind of tech startups in the capital city that attract wealthy investors.But Bloomberg Economics’ Ana Andrade notes overall productivity has been mixed. Spanish GDP has grown less impressively on a per-capita basis than in aggregate, enough to overtake Japan’s but still firmly behind Korea’s. On a per-hour-worked basis, there’s a persistent gap with Germany, the Netherlands and the Nordic countries.Spain seems to be waking up to the promise of AI in this regard, stumping up government cash to take a $130 million stake in Barcelona-based chipmaker Openchip — described by boosters as “the Catalan Nvidia” — and eyeing data-centre expansion thanks to its cheap electricity.But this won’t be a game-changer on its own. Tech adoption by industries and consumers needs a quantum leap to close a persistent size and innovation gap between Spanish firms and their European peers. So does investing in better infrastructure to attract talent, with housing costs absorbing up to 70% of wages in Madrid and Catalonia.Perhaps the tourism industry could be a proving ground for a more efficient and productive workforce, whether it’s AI-generated recommendations, automated hotel check-ins or cleaning robots. Spain’s economic performance has been a case of “no AI, no problem.” Longer-term, Korea will offer more of a path to follow for Europeans. Also Read: Ather Energy is said to plan $200 million India share sale
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