How Spain Became Europe’s Fastest Growing Major Economy

The countries of southern Europe have been outperforming the rest of the euro area since the end of the Covid pandemic, in part because of the strength of their service industries. Spain has been a standout, distinguished by its higher value-added services sector, and it has growth momentum that is expected to last for several years, according to Goldman Sachs Research.

Our economists have raised their forecasts for Spain and now expect the economy to grow 1.9% in 2026 and 1.7% in 2027 (compared with previous forecasts of 1.5% and 1.6%, respectively). This increases next year’s growth forecast for the entire euro area by 0.1 percentage point to 1.2%.

While the resilience of the services sector has been recognized as a driver of economic growth in southern Europe since the pandemic, observers typically link this solely to tourism-related services. The tourism rebound certainly was pivotal early on, but the composition of services activity in Europe has shifted toward subsectors with more value added per employee—including finance, real estate, information and communications technology, and professional services. This trend has been particularly notable in Spain.

“The shift toward high value-added services is the least appreciated structural change of the Spanish economy in our conversations with investors,” Filippo Taddei, senior economist focusing on southern Europe and European policy within the European Economics team, writes in the team’s report. The share of high value-added services in Spain’s GDP is now 3 percentage points higher than it was pre-pandemic and has increased by 1 percentage point more than in the rest of the euro area.

What is driving Spain’s economy?

In fact, Spain’s recovery has benefited from a rebound in both manufacturing and services. The country took the biggest growth hit among EU member states during the pandemic, but it has been leading the recovery since then. In 2024, Spain completely closed the gap in GDP per capita that opened with the rest of the euro area during the pandemic.  

Spain’s economy is also getting a boost from immigration. The country is taking in more people relative to the size of its population than Germany, France, or Italy, and the latest influx is characterized by immigrants with higher levels of education and job skills. This distinctive demographic trend “could set Spain on a better footing” than the rest of Europe, Taddei writes.

At the same time, Spain has less exposure to the potential negative impact of US tariffs. The researchers expect Europe as a whole to see little economic growth in the second half of this year because of the tariff headwind, but Spain will be less hard hit because its share of exports to the US is markedly below the European average. The products Spain produces also are less exposed to industrial competition from China.

How is political uncertainty affecting Spain’s economy?

This year, the Spanish government has been unable to rely on a stable parliamentary majority, but this is not hindering the fiscal outlook. The country has a structurally lower level of taxation and spending compared with peers such as Italy and the average for the eurozone.

In fact, political uncertainty has slowed down the pace at which the government is spending the European Recovery fund, the main EU fiscal program designed to facilitate the post-pandemic recovery and structural change. 2025 may be the first year in which deployment of these resources does not increase on an annual basis. This backloads fiscal support for the economy, shifting more spending to 2026 and (only in small part) 2027. Our economists also expect an additional increase in Spain’s defense spending, and they forecast that fiscal deficit spending will rise to 2.6% of GDP in both 2026 and 2027, providing a further fiscal boost to the economy.