Spain had a good 2024, earning it the accolade of the ‘best-performing rich-world economy’ from The Economist, based on its GDP growth, the rise in share prices, inflation, unemployment and the primary balance. This year also looks healthy except for the growing crisis over the lack of housing.
The economy grew more than 3%, four times the euro zone average, the IBEX-35 share index rose 14.2% (almost double that of Euro Stoxx), inflation was 2.8%, the jobless rate of around 11% was the lowest in 17 years (but almost double the euro-zone average) and the primary balance (the difference between government revenue and its non-interest spending) was only slightly negative. In short, the year turned out not only to be far better than the opposition and doom mongers had confidently predicted, but also much better than expected by independent observers.
The strong growth was fuelled by: another record year for tourism, with 94 million arrivals, nine million more than in 2023; a high level of household savings, built up since the COVID pandemic, now deployed for consumer spending; a real increase in wages (the minimum monthly wage of 14 payments rose 54% between 2018 and 2024 to €1,134) and the arrival of large tranches of the EU’s Next Generation funds.
The current account, buoyed by both tourism and non-tourism services, has been in surplus for more than a decade, and is only surpassed by Germany among the EU’s largest economies. Bond yields dipped below those of France for the first time since 2007. Carlos Cuerpo, the Economy Minister, believes Spain will achieve its first primary surplus since 2007 this year.
The Bank of Spain forecasts lower but still brisk growth this year of 2.5%, with domestic demand still strong (see Figure 1).
Figure 1. Macroeconomic forecasts, 2024 and 2025 (%)
| 2024 | 2025 | |
|---|---|---|
| GDP growth | 3.1 | 2.5 |
| Domestic demand (contribution to growth) | 2.6 | 2.6 |
| Net external demand (contribution to growth) | 0.5 | -0.1 |
| Consumer inflation | 2.9 | 2.1 |
| Unemployment rate | 11.5 | 10.8 |
| Fiscal balance | -3.4 | -2.9 |
| Current account balance | 4.1 | 4.2 |
| Public debt (% of GDP) | 103.1 | 102.6 |
But for the rise in the working population the unemployment rate would have dropped below 10% for the first time since the first quarter of 2008 at the height of the last economic boom. That ended with the spectacular bursting of an immense real-estate bubble and an ensuing recession which saw unemployment peak at 27% in the first quarter of 2013. Spain’s jobless rate is now less than half that dreadful figure, although the 2.5 million people registered as unemployed at the end of 2024 still accounted for 19% of the EU’s total.
Spain’s population surged from 47.4 million in 2021 to 48.8 million in July 2024, almost entirely due to immigration as the country’s fertility rate of 1.3 children per woman is far short of the 2.1 at which existing population levels would be maintained. Foreigners now account for more than 15% of the work force in 20 of Spain’s 50 provinces, and for more than 20% in five of them.
In the face of Spain’s rapidly ageing population, the government plans to legalise around 300,000 undocumented migrants per year over the next three years, even as other EU countries such as Germany and Italy seek to tighten border controls. ‘Spain needs to choose between being an open and prosperous country or a closed-off, poor country’, said Socialist Prime Minister Pedro Sánchez. ‘It’s as simple as that’. The reform, set to come into force as of May, aims to simplify legal and administrative procedures for work and residence permits. Immigrants, however, have become one of Spaniards’ main concerns: 57% said there were already too many, according to the pollster 40dB.
The rise in the foreign-born population to more than 9 million (19% of the total population) is exerting pressure on an already tight housing market. Other factors are tourist demand, lower interest rates for mortgages, greater job creation and more disposable income. Far outstripping the growth in real wages, average house prices have risen 56% since 2014, by when Spain had recovered from its Great Recession.
The lack of housing at affordable prices, now one of Spaniards’ main concerns, is the result of more than a decade of both the conservative Popular Party and the Socialists, when in power, paying little more than lip service to the problem. The Bank of Spain’s 2023 annual report said there were a staggering four million empty properties including those not sold, those in a bad state and those which were second, third or more properties that were hardly used and which the owner preferred not to rent because of legal uncertainty.
With the population rising by more than 500,000 a year, an estimated 250,000 new homes are needed every year but fewer than half this number are being built. Many construction companies went to the wall after the bursting of the real-estate bubble as of 2008. Those that survived or restarted are now much more cautious. At that time, the housing offer far exceeded demand. In 2006 the number of housing starts (664,923) was more than that of Germany, France and Italy combined (it dropped to 29,232 in 2013 and then began to rise slowly). Now, with Spain’s population 2.4 million higher than in 2008, demand far exceeds the offer, overheating the real-estate market mainly in urban areas.
The lack of offer has sparked protests in parts of the country hit by overtourism, notably the Canary and Balearic Islands and Málaga, where young adults are angry at being priced out of the property market because more and more flats and shops are being converted into accommodation for exclusive use by tourists. The rise in rents has produced an increase in flat shares. According to the real-estate portal Idealista, close to 50 people in Málaga compete for each advertised room. ‘Demand will remain strong and this will be reflected in prices and in widespread discontent’, said Santiago Carbó, professor of Economics at the University of Valencia.
Spain’s stock of social rental dwellings (estimated at around a paltry 2.5% of the total housing stock) is almost the lowest among the 38 OECD countries. In the Netherlands it is 35%. Spain is the country with the highest percentage of tenants at risk of poverty or social exclusion in the EU. The proportion of homes owned by those under 35 dropped from 15% in 2002 to 7% in 2022. Largely because of this, Spaniards only leave home on average at the age of 30 (the EU average is 26).
The government is to set up a public housing body to manage and build social rental dwellings. It will take over the 40,000 properties from Sareb, the company created in 2012 to manage and sell the troubled assets of the many rescued and collapsed banks. The financial cost of the 2008-14 banking crisis is estimated at around €80 billion. The government has also scrapped the so-called ‘golden visa’ scheme, started in 2013, granting residency rights to non-EU citizens who invested at least €500,000 in real estate.
Other proposed measures include a 100% tax on real-estate purchases for buyers from non-EU countries, higher taxes on Airbnb-style holiday rentals, a programme to refurbish vacant housing and public guarantees for landlords who provide ‘affordable’ rentals. ‘In 2023 alone, non-residents from outside the EU bought 27,000 houses and flats’, said Sánchez. ‘Not to live in them, but mainly to speculate. Something that, in the context of the shortages we are experiencing, we cannot afford.’ The 27,000 purchases account for a miniscule 0.1% of the total 27 million homes.
The Bank of Spain says 1.5 million social rental dwellings are needed to bring the country up to the EU average (7% of the housing stock). Providing them will be a Herculean task. It will also require much closer cooperation between the central, regional and municipal governments. The housing policies of the conservative Popular Party, which controls 11 of the 17 regional governments, are much less interventionist than those of the Socialists.
Equally demanding will be meeting the incoming US President Donald Trump’s call to boost defence spending to a whopping 5% of GDP. Spain’s spending (1.28%) is already far from NATO’s 2% target set in 2014 for 2024 (Spain aimed to reach that target in 2029). Its spending is the lowest among the 32 members of the alliance (see Figure 2).
Figure 2. Defence spending, 2014 and 2024 estimates (% of GDP)
| 2014 | 2024 | |
|---|---|---|
| Poland | 1.84 | 4.26 |
| US | 3.38 | 3.71 |
| UK | 2.14 | 2.28 |
| Germany | 1.19 | 2.12 |
| France | 1.82 | 2.06 |
| Italy | 1.14 | 1.49 |
| Spain | 0.92 | 1.28 |
As regards the green transition, Spain is quite advanced in the use of renewable energy (56% of electricity in 2024 was generated by renewables). But it is a laggard in adopting fully electric vehicles: only 5% of cars sold last year were electric compared with 16% in Portugal. Spain has just over 41,000 charging points, double the number of Portugal, but its population is more than four times greater and its surface area five and a half times larger. Portugal also offers greater incentives including a full VAT deduction for cars below a certain price.
Lastly, negotiations between Spain, the EU, the UK and Gibraltar on the post-Brexit status of the British Overseas Territory within the EU, which started in October 2021, are still not concluded. Failure to achieve a solution could at some unspecified point mean a hard border between the Rock and Spain instead of the desired common travel area between Gibraltar and the EU’s passport-free Schengen area. Gibraltar voted overwhelmingly in favour of remaining in the EU.
A major sticking point is Spain’s request to have its border police or similar on Gibraltarian soil. Gibraltar views this as an erosion of its sovereignty. As a deal envisages no more checks between the two sides, the Rock’s port and airport would effectively become gateways to Spain and the wider Schengen area.
A foretaste of the impact of no agreement was seen last October when Spanish police briefly and erroneously re-established border controls. This caused long queues of rush-hour workers on foot, as well as cars, on both sides of the frontier as Gibraltar, in response, also asked to see passports and not just EU ID cards. Around 15,000 cross-border workers enter Gibraltar daily.
It is very much in the interests of both parties to reach an agreement and not be caught between a rock and a hard place, leaving undesired consequences on both sides of the border.
