Spain | From problem child to model student: What Germany can learn from Spain's economic success
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Published on: September 30, 2025 / Updated on: September 30, 2025 – Author: Konrad Wolfenstein
Spain | From problem child to model student: What Germany must now learn from Spain's economic success – Image: Xpert.Digital
The roles are reversed: What suddenly makes Spain so much better than the German economy
What is actually going on with the Spanish economy?
How is it possible that a country that just a few years ago was considered one of the Eurozone's biggest crisis losers has now become Europe's growth champion? This question arises in light of the impressive figures from Spain. Gross domestic product grew by an impressive 3.2 percent in 2024, while the EU average was a meager 0.8 percent. The EU Commission forecasts growth of 2.6 percent for Spain in 2025, once again placing the country significantly above the European average. In the second quarter of 2025, the Spanish economy grew even more strongly than expected, growing 0.8 percent compared to the previous quarter.
This development is particularly remarkable when compared to Germany. While Spain is booming, the German economy has been stagnating for three years. In 2024, German GDP shrank by 0.2 percent, and experts expect minimal growth of between 0.1 and 0.2 percent at best for 2025. The OECD even ranks Germany at the bottom of the list among advanced industrialized nations.
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Why is Spain growing so fast?
The reasons for Spain's impressive growth are diverse and complementary. A key factor is strong private demand. New jobs and real income increases are driving consumption, while strong immigration is bringing additional momentum to the system. According to the national statistics agency INE, the number of inhabitants in Spain increased by 1.7 million to 49.1 million between the beginning of 2021 and the beginning of 2025.
According to the EU Commission, private consumption will continue to grow at the same strong pace in 2025, at 2.9 percent, as in the previous year. Domestic demand contributed 0.8 percentage points to growth in the second quarter of 2025. Household spending rose by 0.8 percent, and investment even increased by 1.8 percent.
On the supply side, almost all major sectors expanded. Industrial production grew by 0.9 percent, services increased by 1.0 percent, and construction jumped by an impressive 2.3 percent. Only the primary sector shrank by 6.4 percent.
What role does tourism play?
Tourism is undoubtedly one of the most important growth drivers of the Spanish economy. Following the COVID-19 pandemic, this sector has rebounded. The Spanish statistics office (INE) recorded 93.8 million international tourists in 2024 through November – significantly exceeding pre-pandemic figures and representing growth of 10 percent compared to 2023.
The financial impact is significant. In the first two months of 2025 alone, 16.5 million international tourists visited Spain – an increase of 11.3 percent compared to the same period last year. Tourism revenue rose by 7.6 percent to €7.25 billion in February. Total revenue for the first two months combined amounts to €14.392 billion.
Forecasts predict that the Spanish tourism industry will contribute over €260 billion to the national economy by 2025. The sector could create up to 3.2 million jobs and account for approximately 14.4 percent of total employment in Spain. Tourism accounts for over 13 percent of GDP in Spain, meaning its importance to the overall economy can hardly be overestimated.
How important is immigration for Spain's success?
Immigration plays a crucial role in Spain's economic miracle. Experts attribute the boom largely to the influx of foreign workers. Between 2022 and 2024, Spain welcomed nearly 750,000 migrants, primarily from Colombia, Peru, and Venezuela. The rapid integration of this group is due to the shared language, culture, and history.
According to the Spanish government, almost half of all jobs created in Spain since 2022 have been filled by half a million people from abroad. These new migrants bring valuable skills and a strong work ethic, leading to an increase in the workforce, particularly in sectors such as tourism, technology, and services.
The Spanish government has recognized that the country urgently needs additional workers. Prime Minister Pedro Sánchez cited studies that show Spain needs 250,000 immigrants per year to maintain its prosperity. The government plans to grant residence and work permits to approximately 300,000 undocumented immigrants annually over the next three years.
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What makes Spain's service sector so successful?
The services sector is a key driver of the Spanish economy. GDP from the services sector rose to €286.739 billion in the second quarter of 2025, reaching an all-time high. In addition to booming tourism, other export-oriented services such as consulting, financial services, and IT are also flourishing. Spain is increasingly positioning itself as a major player in the international services market.
This development is also reflected in the services balance. Spain achieved a positive services balance in 2024, meaning the country exported more services than it imported. This is an important indicator of the competitiveness of the Spanish services sector in international markets.
What about labor market reforms?
Spain has implemented important labor market reforms in recent years, contributing to economic dynamism. In 2022, the government introduced the " arraigos roots" principle, which allows those who have already spent time in Spain and put down roots there to obtain residency.
The most recent labor market reform of 2022 aimed to restore workers' rights lost under previous reforms and strengthen collective bargaining. The main goal was to reduce unemployment and adapt labor legislation to changing economic conditions.
These reforms have contributed to the employment rate being higher than ever before. Although unemployment remains high at 14.1 percent (as of November 2021), the trend is positive. The increased flexibility of the labor market and the pragmatic approach to integrating migrants are contributing significantly to economic growth.
What advantages does Spain have in terms of energy costs?
A key competitive advantage for Spain lies in its energy costs. The country has invested heavily in renewable energy and boasts one of the most advanced green energy infrastructures in Europe. In 2024, the share of renewable energy in total Spanish net electricity generation was around 59 percent. Onshore wind energy accounted for the largest share of the electricity mix, at around 24 percent.
Spain stands out as Europe's leader in utility-scale solar energy. The country has more operating utility-scale solar capacity (29.5 GW) than any other European country. In addition, it has more capacity under construction (7.8 GW) and in early stages of development (106.1 GW) than the next three European countries combined.
This massive investment in renewable energy is making electricity in Spain increasingly affordable overall. Thanks to the abundance of renewable energy, Spain can even export cheap electricity to France. This gives Spanish industry a significant cost advantage over countries with higher energy prices.
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Why Germany is losing: bureaucracy, energy and aging
What are Spain's demographic advantages?
While Germany struggles with the consequences of demographic change, Spain benefits from population growth through immigration. Spain's population increased by 1.13 percent from 48,085,361 to 48,630,010 as of January 1, 2024. The total population was estimated at 49.1 million people in 2024.
In the second quarter of 2024, Spain registered the highest number of regular immigrants from Colombia (36,900), Morocco (25,100), and Venezuela (21,400). The provinces of Madrid, the Comunitat Valenciana, and the Balearic Islands recorded the largest population growth.
This demographic development stands in stark contrast to Germany, where the number of 20- to 64-year-old citizens will be around eleven percent lower by 2030 than in 2020. Germany is facing a massive demographic problem, while Spain is rejuvenating and expanding its workforce through targeted immigration policies.
Why is Germany stagnating?
Germany has been struggling with economic stagnation for three years. The German economy shrank by 0.2 percent in 2024, and leading economic institutes expect growth rates of only between 0.1 and 0.2 percent for 2025. The problems are diverse and structural in nature.
A major problem is high energy costs. German companies pay significantly more for electricity than their competitors in other countries. The German electricity price for large industrial customers was recently at 23.3 cents/kWh, which is at the upper end of the EU comparison. These high energy prices are hampering companies' investment activities and thus their ability to innovate.
The OECD sees weak production as the main cause of Germany's persistent slump. This is primarily due to weak export demand from China, which is particularly affecting German industry. Competition from Chinese products is causing problems for German manufacturers, especially the automotive industry, in other sales markets.
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What role does bureaucracy play?
Another serious problem facing Germany is excessive bureaucracy. In 2024, compliance costs for businesses, citizens, and administrations will amount to €27.1 billion. Studies estimate that Germany loses €146 billion in economic output annually due to this excessive bureaucracy.
Growing bureaucracy is increasingly hindering growth and discouraging market entry. Germany is losing its appeal as a business location. A country comparison by the Center for Economic Research (ZEW) shows that bureaucracy and regulation are stifling growth and making Germany unattractive as a business location.
More and more companies are considering relocating their production abroad, where bureaucratic hurdles are lower. Four out of ten companies are considering reducing their production in Germany or relocating it abroad due to energy prices and bureaucracy.
What impact does demographic change have on Germany?
Germany faces enormous demographic challenges. The average age of the population in 2023 was 44.6 years, while the proportion of the German population over 65 was 22.3 percent. The fertility rate is only 1.35 – far below the replacement level of 2.1 children per woman.
By 2030, only half as many young people will enter the labor market as older people will leave. This demographic shift has been evident for 50 years and can no longer be stopped. Germany can only try to adapt and mitigate the worst consequences.
The baby boomers are now retiring, and there are simply too many of them. Forecasts predict that by 2060, one in three will be at least 65 years old. Without massive immigration, the German population would shrink continuously.
What are the structural differences?
The structural differences between Spain and Germany are becoming increasingly clear. While Spain benefits from young, dynamic immigration, Germany is struggling with an aging society and a shortage of skilled workers. Spain has successfully converted its energy supply to renewable energies and benefits from lower energy costs, while Germany suffers from high energy prices.
The Spanish government pursues a pragmatic immigration policy and systematically facilitates access to the labor market. Germany, on the other hand, struggles with bureaucratic hurdles and a restrictive migration policy. Spain has recognized and promoted its service sector, especially tourism, as a growth engine, while Germany is heavily dependent on its ailing manufacturing sector.
What lessons can be learned?
The Spanish economic miracle demonstrates that a clever combination of factors can lead to impressive growth. A pragmatic approach to integrating migrants, massive investments in renewable energy, the promotion of the service sector, and flexible labor market reforms have made Spain Europe's growth champion.
Germany, on the other hand, must address its structural problems. Reducing bureaucracy, lowering energy costs, implementing a more proactive immigration policy, and modernizing economic structures are urgently needed. Without these reforms, Germany risks falling further behind, while countries like Spain pull ahead.
Is the Spanish model sustainable?
The question about the sustainability of Spain's growth model is legitimate. The country is heavily dependent on tourism, making it vulnerable to external shocks. The high cost of living, especially in the big cities, remains a problem. Rents and property prices are climbing to ever-increasing heights.
Nevertheless, forecasts show continued positive development. The OECD predicts growth of at least 2.3 percent for Spain in 2025 and at least 2 percent for 2026. Spanish GDP is projected to reach approximately $1.8 trillion in 2025.
Economic diversification is progressing. In addition to tourism, the technology sector is also growing, and the number of highly qualified migrants is increasing. Massive investment in renewable energy is positioning Spain as a future energy exporter, particularly in green hydrogen.
What does this mean for the future of Europe?
The Iberian economic miracle is changing the balance of power in Europe. Spain is transforming from a crisis-ridden country into a growth engine, while Germany, once the engine of the European economy, is faltering. This shift has far-reaching consequences for European integration and the distribution of economic and political power within the EU.
Spain's success demonstrates that it is possible to successfully implement structural reforms and modernize the economy. The country has proven that a combination of pragmatic migration policies, investments in future-proof technologies, and flexible labor market reforms can lead to sustainable growth.
Germany must see this development as a wake-up call. Without fundamental reforms, the country risks losing its status as Europe's economic power. The time for half-hearted measures is over – Germany needs a comprehensive modernization offensive to compete successfully in Europe and globally.
The Spanish example shows the way forward: courage to embrace reforms, pragmatism in implementation, and a willingness to explore new avenues. Only in this way can Germany regain its former strength and maintain its position as Europe's leading economic power.
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