Spain’s economy is expected to significantly outpace the wider euro area this year as the nation benefits from higher labor productivity and a strengthening fiscal position, according to Goldman Sachs Research.

Spain, the fourth-biggest economy in the euro area, is forecast to increase its GDP by 2.1% on a year-over-year basis, which is three times the expected 0.7% rise for the currency union.

Building on its region-leading performance in 2025, the Southern European nation’s economy is demonstrating “structural resilience” amid the global energy shock, writes Filippo Taddei, Goldman Sachs’ senior economist for Southern Europe, in a report.

Why are Spanish bond spreads stable?

The country is making progress across several fronts. Spain’s unemployment rate has dropped to its lowest level since 2008, and its employment rate is at an all-time high. Productivity is growing faster than in the European Union’s three other major economies: Germany, France, and Italy. And Spanish government bonds, unlike those of other European nations, have been relatively stable amid soaring energy prices. While Spanish sovereign spreads have widened in tandem with broad-based inflation and slowing global growth, investors remain confident in the country’s domestic position, writes Taddei.

“Spain’s macro-outperformance remains visible in economic activity and in sovereign debt pricing,” Taddei writes. “Economic activity has continued to run ahead of the euro area and the US since the middle of last year, while sovereign spreads have remained comparatively tight, indicating investors’ confidence in the outlook for Spain.”

Still, Taddei writes that the energy shock is slowing Spain’s economy and he highlights two key risks that may dim its outlook. This summer, rising energy costs might deter air travel and squeeze tourism, a significant source of economic activity in Spain. And the nation’s volatile political situation—it’s governed by a fragile minority coalition—could sap investors’ confidence with the 2027 general election on the horizon, he writes.

How is high immigration affecting Spain’s growth?

Spain’s economy is benefitting from policies that differ from those of its European neighbors, writes Taddei. Spain’s accommodation of large net migration flows has been a key factor supporting economic growth even as its openness to immigration puts pressure on a tightening housing market.

At the same time, employment gains are increasingly concentrated in higher-value-added sectors such as professional services, finance, and information and communications technology. In Spain, those types of jobs have increased more than 20% since 2019, roughly double the rate in France or Italy, Taddei writes.

And they appear to be connected to stronger productivity growth.

“Spain’s recent outperformance likely reflects a gradual improvement in the quality—not only the quantity—of labor demand,” writes Taddei.

How is Spain lowering its debt-to-GDP ratio?

Spain has also taken a forceful fiscal approach to the surge in oil and natural gas prices triggered by the conflict in the Strait of Hormuz. Even though the Mediterranean nation is the least exposed of Europe’s top four economies to the hydrocarbons crunch, Spanish policymakers have provided a range of tax cuts and other measures to help households and businesses.

The additional spending, which exceeds similar programs in Germany, France, and Italy, did not undermine the government’s broader fiscal position, writes Taddei. A key reason was the government’s decision to not prioritize a defense buildup. This policy has preserved the nation’s credibility with the bond market, and Spain is now the only nation among the EU’s top four expected to lower its debt-to-GDP ratio over the next three years, writes the economist.

Will Spain’s tourism industry slow down?

As the summer holiday season begins, Taddei is keeping an eye on what happens with tourism, a sector that accounts for 12.6% of GDP, according to estimates from the National Statistical Institute. Taking into account the share of international tourist arrivals by air in total spending, Taddei finds that every 10% reduction in tourist arrivals by air could lower GDP by about 0.3%.

And while the government has managed to shape fiscal policy and reduce the deficit, the Spanish government has not been able to pass a full-fledged annual budget since a snap election in 2023, writes Taddei. Now, with an election expected next year, investors are bound to turn their focus back to politics.

“Prolonged political uncertainty would likely reduce investors’ confidence in the continuing transformation of the Spanish economy and weaken the case for our constructive outlook,” writes Taddei.

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