Weekly update - Spain, world champion of football and growth

If Spain is a world champion of football, the country is also posting excellent economic and financial performances. Its growth is the most dynamic among the main European economies, without being accompanied by major imbalances. The good performance of the Spanish economy is explained by the dynamism of service exports, strong demographic growth and rising public spending. These performances are also reflected in the strength of financial markets, with a strong rise in stock market indices and a marked reduction in risk premiums. Nevertheless, these good results have not yet made it possible to erase all the scars of the crisis of the 2010s.

The best-performing economy in the euro area since the covid crisis. Since 2022, Spanish growth has reached 3.5% on average per year, compared with 1.5% for the euro area. Spain thus appears as the most dynamic developed economy, even ahead of the United States. A first explanation lies in the strong growth of service exports, which have grown by an average of 8% since 2024. While part of this increase is explained by the dynamism of tourism, it also reflects the good performance of business service exports, particularly in consulting. A second factor is particularly favorable demographic dynamics. Since the Covid crisis, the Spanish labor force has increased by 2.1 million, thereby supporting domestic demand. This development is largely explained by strong immigration. Another driver of Spanish outperformance is the growth of public expenditures, above 3% over recent years, within the framework of the European recovery plan. Finally, from a structural perspective, Spain has been more resilient to energy and trade shocks coming from China and the United States. Its energy mix is less dependent on Russia and its economy is more oriented toward services. Overall, this growth has been achieved without generating major imbalances in public or external accounts.

Particularly strong financial markets. Alongside the good performance of growth, Spanish financial markets are also recording very strong performances. The IBEX 35 is the most dynamic stock market index among developed markets, with a rise of 123% since 2022. This increase notably reflects a sector composition highly exposed to banks and utilities. Bond markets show a comparable trajectory, with a significant compression of sovereign risk premiums since 2022.

Scars from the crisis of the 2010s that have not fully healed. The strong dynamism of the Spanish economy over recent years has nevertheless not erased all the consequences of the bursting of the real estate bubble of the 2010s. Indeed, although it has fallen significantly from its peak in 2013, the unemployment rate remains high at 11%, a level significantly above that observed in the euro area. Moreover, this unemployment remains particularly concentrated among those under the age of 25.

Read full article