Spain's Economic Growth Outpaces Eurozone but Faces Structural Risks

Spain has experienced five consecutive years of economic growth, significantly outperforming the Eurozone average and emerging as a key player in the European labor market. This growth has been primarily driven by strong domestic demand, with job creation rates surpassing those of Germany and France, which are expected to grow below 1% in the coming period. However, this robust expansion raises concerns over sustainability and growing external imbalances. The European Central Bank (ECB) has cut interest rates by 200 basis points in two years, leading to potentially negative real interest rates in Spain. Miguel Cardoso, BBVA Research’s chief economist for Spain, warns that the current economic environment resembles the pre-2008 crisis, where low interest rates fueled imbalances and risked inflation amid diverging growth dynamics across Eurozone countries. Spain’s economy is growing above 2% with inflation near 3%, while its banking sector remains more resilient than before the 2008 crisis, and household debt levels have decreased. Nonetheless, unresolved structural challenges—particularly low productivity and high youth unemployment—pose risks to long-term stability. The heavy reliance on domestic demand and Next Generation EU funding heightens the risk of external deficits and increased costs as demand rises. Regionally, Murcia’s economy is expected to grow at an average of 2.6% between 2025 and 2027, surpassing the national forecast, with employment growth projected at 2.6%—higher than the national 1.9%. However, this growth is set to decelerate progressively, mirroring broader national trends. The construction sector leads Murcia’s economic expansion, followed by services and industry. Overall, while Spain’s economy is robust relative to its Eurozone peers, close monitoring is essential to address structural weaknesses and external risks to ensure sustainable growth.