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5/23/2025
Despite some clouds gathering, we remain optimistic about Spain’s economic prospects. Investment in machinery and equipment has been especially encouraging in Q1 2025.
What a difference ten years can make. Not so long ago, Spain was still in the midst of an economic and social crisis. Many young people were loudly protesting against their lack of job prospects, while others were quietly leaving the country in droves. As we previously pointed out, it appears Spain has instead become a land of opportunity.[1] Since 2019, the number of foreign-born workers has increased by more than 1.2 million, mostly from Latin America.
Openness to migrants and foreign investments explains some, but by no means all of Spain’s substantial economic outperformance compared to much of the Eurozone. Spain has been one of the biggest beneficiaries of the Next Generation Fund, the European Union's aid program to tackle the pandemic. Much of the recent success also reflects post-financial crisis reforms to banks and the labor market. Renegotiating labor contracts has become easier and encouraged employers to hire more permanent staff. Due to sharp increases in the minimum wage, the incomes of poorer Spaniards have risen faster than the average wage.
This also points to some of the potential clouds gathering over Spain’s model economy. As our Chart of the Week shows, construction spending on both housing and other buildings fell off a cliff in the post crisis years, leading to housing shortages and rising rents, to the delight of real estate investors.[2]
Sources: Haver Analytics Inc., DWS Investment GmbH, as of May 2025
Spain’s minority government has had to juggle conflicting demands of various left-wing and nationalist parties, while passing tax increases to gradually reduce the budget deficit, at the same time as boosting miserly defense spending.
“Overall, we continue to see good reasons to remain optimistic,” argues Ulrike Kastens, Senior Economist Europe at DWS. “Especially encouraging is that investment in machinery and equipment has finally recovered to its pre-Covid levels. Tourism is holding up well and Spain is also increasingly successful at exporting other services, such as technology consulting and engineering. But with other European countries also finally tackling some of their growth bottlenecks, it remains to be seen how long Spain’s outperformance can last.”
DWS Insights, 2/14/2025, “Chart of the week: Is Spain becoming a model country? The bond market bathes in the positive sentiment,” available at: Is Spain becoming a model country?
For further details on how and why Spain has become a European magnet for real estate investment, see DWS Insights, May 2025, “Viva España! A Magnet for Property Investment Spain.” available at: Viva España!
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