Spain: Economic and Political Overview

Economic Overview

Spain has been in the midst of a balanced economic recovery in recent years and is currently one of the fastest-growing economies in Europe. After growing by 2.7% in 2023, real GDP expanded by 3.2% in 2024, buoyed by carry-over effects from the previous year. Consumer spending continued to increase, supported by job creation and real income gains. On the external front, strong tourism and non-tourism service exports help net exports (data INE). As per the EU Commission, economic activity is projected to slow to 2.3% in 2025 and 2.1% in 2026, with domestic demand remaining the primary driver, fueled by consumption and increased investment. This is linked to the Recovery and Resilience Plan (RRP), solid corporate finances, and easing financing conditions. Furthermore, a rebound in imports should reduce the external demand contribution to GDP in 2025 and 2026.

After reaching 3.5% of GDP in 2023, the general government deficit decreased to an estimated 3% in 2024, as most measures to mitigate the economic and social impact of high energy prices were phased out (data EU Commission). The revenue-to-GDP ratio increased, partly due to the removal of VAT reductions, the special tax on electricity, and the exemption from the tax on the value of electricity. The phase-out of the fuel rebate also contributed to savings on the expenditure side. Risks to the projections stem from the costs associated with addressing the impact of recent floods in the Valencian Community. With unchanged policies, the government deficit is expected to further decline in 2025 to 2.6% of GDP, despite slightly higher interest expenditure. This decline is driven by slower growth in nationally-financed primary expenditure and positive tax revenue trends. Supported by strong nominal GDP growth, which outpaced the cost of debt servicing, the debt-to-GDP ratio decreased to 102.3% in 2024 (from 105.1% one year earlier). The ratio is expected to decrease more gradually in 2025-2026, reaching around 101.1%, due to a less favourable interest-growth rate differential (EU Commission). Annual HICP inflation declined to 2.8% in 2024, driven by the ongoing slowdown in energy and food price inflation. Underlying price pressures eased more gradually, particularly in services related to hospitality and transport. Headline inflation is expected to continue slowing in 2025, reaching 2.2%, with the downward trend in underlying components projected to persist in the coming quarters, before easing further to 2.0% in 2026.

The strong performance of the labour market continued into 2024, with job creation accelerating sharply in the first half of the year and maintaining momentum into the third quarter. Employment growth expanded by 2.3% in 2024, mainly driven by strong immigration flows. The unemployment rate is expected to decline steadily, reaching 10.7% by 2026, down from around 11.5% in 2024. Nominal wage growth outpaced inflation in 2024, with real income gains expected to moderate in 2025 and 2026. Spain remains a country with strong inequalities: according to the latest data by Eurostat, 27% of the population is at risk of poverty or social exclusion (the third-highest level in the EU), despite a relatively high GDP per capita (USD 35,789  in 2024 – IMF).

Main Sectors of Industry

Agriculture contributes around 2.5% of the Spanish GDP and employs 4% of the workforce (World Bank, latest data available). The country is home to almost one million agricultural and livestock businesses, covering 30 million hectares of land. Spain is the world's largest producer of olive oil and the world's third-largest producer of wine. The country is also one of the largest producers of oranges and strawberries in the world. The main crops are wheat, sugar beet, barley, tomatoes, olives, citrus fruits, grapes and cork. Livestock is also important, especially for pigs and cattle: Spain accounted for about one-quarter of the EU's pig (25.4%) and sheep (23.6%) populations in 2023 (EU Commission, latest data available). Data by the Agricultural Ministry shows that land destined for biological cultivation accounts for 12.5% of the total arable land, with 64.430 active operators in the sector (in production or distribution). Agricultural income in Spain reached EUR 37.759 billion in 2024, marking a 14.2% increase compared to 2023, according to the Ministry of Agriculture, Fisheries, and Food's initial economic estimates for the sector. This growth is largely attributed to lower production costs and a significant rise in agricultural production value, which hit a record high of EUR 68.430 billion. The increase in agricultural output, encompassing both crop and livestock production, was primarily driven by an 11% rise in production volumes, despite a 6% decline in prices due to falling overall inflation. The agricultural workforce grew by 1.5%, and income per Annual Work Unit (AWU) rose by 12.6%, reaching EUR 45,890.

The industrial sector accounts for one-fifth of GDP and employment. Manufacturing as a whole is the most important sector as it accounts alone for around 11% of GDP (World Bank). The industrial sector is dominated by automotive, textiles, industrial food processing, iron and steel, naval machines, and engineering. Spain is the second-largest automotive manufacturer in Europe, with exports accounting for over 60% of production. New sectors such as outsourcing of electronic components production, information technology, and telecommunications provide high growth potential. The renewable energy sector is also growing at a fast pace. According to the Instituto Nacional de Estadística (INE), industrial production recorded a 0.7% yearly increase in 2024, after a 1.6% one year earlier.

The tertiary sector contributes 68.7% of the GDP and employs 76% of the active population. The tourism sector is pivotal for the country’s economy, being Spain’s main source of income, as the country is the second-most popular tourist destination in the world. According to the latest official figures, tourism contributed 12.3% of GDP and employed 11.6% of the total number of national insurance contributors in 2023, generating a turnover of EUR 184 billion. The banking sector is also important and is composed of ten banking groups under the direct supervision of the Single Supervisory Mechanism (representing more than 90% of the industry). The Bank of Spain directly oversees the remaining 139 entities, including 47 less significant institutions and 92 subsidiaries or branches of foreign organizations (European Banking Federation).

Source: World Bank, Latest data available.

Indicator of Economic Freedom

Score:

69,9/100

World Rank:

39

Regional Rank:

24

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

Business environment ranking

Score:

7.44/10

World Rank:

27/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

Sources of General Economic Information

Ministries

Ministry of Economy, Commerce and Business
Ministry of Digital Transformation
Ministry of Agriculture, Food and Environment

Statistical Office

National Statistical Institute

Central Bank

Bank of Spain
European Central Bank

Stock Exchange

Spanish stock markets

Other Useful Resources

Economic-financial information centre of the Ministry of Finance

Main Online Newspapers

Daily newspaper El País
Daily newspaper El Mundo (in Spanish)
Daily newspaper Expansion (in Spanish)
Daily newspaper Cinco Días (in Spanish)

Economic Portals

Invertia

Political Outline

Current Political Leaders

King: Felipe VI (since 19 June 2014), hereditary
President of the Government and Prime Minister: Pedro Sanchez (since June 2018), Spanish Labour Socialist Party

Next Election Dates

Senate: July 2027
Congress of Deputies: July 2027

Current Political Context

Pedro Sánchez's third government was established in November 2023 after the Spanish Socialist Workers' Party (PSOE) and Sumar secured a parliamentary majority, with external support from the Republican Left of Catalonia (ERC), Together for Catalonia (Junts), EH Bildu, the Basque Nationalist Party (PNV), the Galician Nationalist Bloc (BNG), and the Canarian Coalition (CCa) following the 2023 general election. The right-wing opposition is formed by the People's Party (PP - centre-right), the far-right party Vox, the Navarrese People's Union (UPN), and the Canarian Coalition (Cca).
In 2024, Prime Minister Pedro Sánchez's minority government faced difficulties in passing key legislation, including the 2025 national budget. These challenges were the consequence of inconsistent support among coalition partners and regional parties, particularly Junts per Catalunya, which expressed dissatisfaction with the government's progress on Catalan autonomy issues. Moreover, allegations of corruption involving members of Sánchez’s family have further undermined the government’s stability.
In the 2024 European Parliament elections, the People's Party (PP) emerged as the largest one, securing 34.2% of the vote and 22 seats. The ruling PSOE received 30.2%, translating to 20 seats, while the far-right party Vox gained 6 seats with just under 10% of the vote. The left-wing coalition Sumar and Podemos saw weak results (3 and 2 seats, respectively), with additional competition from the newly formed right-wing party Se Acabó La Fiesta, which won 3 seats.
In foreign policy, Spain reaffirmed its commitment to NATO and the European Union, providing military and humanitarian aid to Ukraine and aligning with EU sanctions against Russia. Moreover, the Council of Ministers approved the recognition of the State of Palestine and Pedro Sánchez has joined the call for an arms embargo against Israel.

Main Political Parties

In the autonomous regions, several parties form coalition governments to garner more power. The December 2015 elections put an end to the two-party system. The main parties/alliances in the last elections held in 2023 were:

- Spanish Socialist Workers Party (PSOE): centre-left, a democratic socialist party and the oldest party
- People’s Party (PP): centre-right, sometimes referred to as the 'popular party'. It is the second largest political party in Spain
- Sumar: political alliance whose main policies include economic equality, social justice, and democratic reform. It was formed, among others, of: the left-wing anti-austerity Unite Movement (Unidas Podemos); United Left (IU) which included several regional parties; the Communist Party of Spain (PCE); and other regional parties.
- Vox: right-wing, Spanish Nationalist party
- Ciudadanos (Citizens' party - C’s): centrist to centre-right, liberalism.

Other significant political forces include:

- Republican Left of Catalonia (Esquerra Republicana de Catalunya - ERC): centre-left, catalan independentism
- JxCat - JUNTS: a coalition of two Catalan nationalist parties: Junts per Catalunya (JxCat) and Units per Avançar (UA).
- EH Bildu (EHB): left-wing, Basque independentism
- Canarian Coalition (CCa): a Canarian nationalist party
- The Party is Over (Se Acabó La Fiesta - SALF): right-wing to far-right and anti-establishment, founded by the social media personality Alvise Pérez. It has no representation in the parliament but obtained 3 seats in the 2024 European parliament elections.

Type of State

Spain is a constitutional monarchy based on a parliamentary democracy.
Power is highly decentralized; the autonomous communities have a high level of legislative, executive and fiscal autonomy.

Executive Power

The King is the Head of the State and the commander-in-chief of the army; his role is mostly ceremonial. Following legislative elections, the leader of the majority party or the majority of the coalition is appointed Prime Minister by the Sovereign then elected by the parliament for a 4-year tenure. The Prime Minister is the head of the government. He is also called the Government. He holds executive power which includes the execution of the law and the management of the routine affairs of the country. The Council of Ministers is appointed by the king on the recommendation of the Prime minister. There is also a Council of State which enjoys the role of the supreme consulting body of the government, but its recommendations are not binding.

The President of each Autonomous Community is from the majority party of the majority coalition winning elections of the Parliaments of the Regions which take place every 4 years. The President forms a government whose «ministers» are appointed under the title «consejeros» and seconded by a cabinet and director generals, etc. who are in charge of each Department heading the sectors for which the Autonomous Community has jurisdiction in substitution of the Spanish State (single administration).

Legislative Power

The legislative power is bicameral. The Parliament, called Cortes Generales, is made up of:
- The Senate which has 265 seats. Its role is that of representing the territories (Autonomous Communities and Departments). 208 senators are elected by proportional representation for 4 years. 57 senators are elected by parliaments of the 17 autonomous communities;
- The Congress of Deputies which has a minimum of 300 seats and a maximum of 400 (currently 350). The deputies are elected by universal suffrage for 4 years from departmental constituencies. There are allotted one minimum representation and the remaining is proportional to their population. To avoid splitting up which is harmful to the stability of the Chamber, the D’Hondt system is applied.
The executive wing of the government depends directly or indirectly on the parliament's support, often expressed by a vote of confidence. The legislative power belongs to the government and the two houses of parliament at the same time. The Prime Minister does not have the authority to dissolve the parliament directly, but he can recommend its dissolution to the king. The Spanish citizens enjoy considerable political rights.
The 17 Autonomous Communities also have a legislative power exercised by their unicameral Parliament within the limit of jurisdictions fixed by each of their statutes.

Indicator of Freedom of the Press

World Rank:

29/180

Indicator of Political Freedom

Ranking:

Free

Political Freedom:

1/7

Civil Liberties:

1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House