Spain: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
Spain has been in the midst of a balanced economic recovery in recent years; although the COVID-19 crisis led the country into an unprecedented downturn in economic activity, with the deepest contraction among EU member states. Nevertheless, the Spanish economy expanded firmly in 2021 (5.1%) and 2022 (4.3% - IMF), also thanks to the recovery of tourism activity and the resilience of the labour market. After decelerating towards the end of the year, GDP growth is set to remain subdued at the beginning of 2023. Headwinds are represented by high energy prices, low confidence of economic agents and an uncertain geopolitical context. The implementation of several reforms and investments under the Recovery and Resilience Plan are expected to lead to an increased dynamism in aggregate demand in the second half of the year, with overall growth projected at 1.2% for 2023, followed by 2.6% in 2024 as per the IMF forecast (1% and 2%, respectively, according to the EU Commission).
Spain’s public finances deteriorated swiftly as a consequence of the COVID-19 pandemic and the Russia-Ukraine conflict. Overall, the EU Commission estimates that the measures taken in 2022 to mitigate the impact of high energy prices (including the reductions of VAT on electricity and gas, the exemption from the tax on the value of electricity production, a 20 cent/litre fuel rebate and subsidies to low-income households and to certain economic sectors) amounted to around 1.6% of GDP. Such expenses were partially offset by increased tax revenue, resulting in a reduction of the public deficit to 4.5% in 2022 (it was 6.9% one year earlier according to the EU Commission). In 2023, the general government deficit is projected to narrow further (4.2%) amid a weaker macroeconomic scenario. Similarly, the debt-to-GDP ratio, at 113.6% in 2022, is expected to follow a downward trend in the forecast horizon, at 112.1% this year and 110.1% in 2024 (IMF), although the country's net foreign debt remains among the highest in the European Union. On the back of a strong increase in energy and food prices, inflation reached 8.8% in 2022 but showed signs of deceleration towards the end of the year. The IMF expects it to slow gradually to 4.9% and 3.5% in 2023 and 2024, respectively, but risks resulting from a more rapid wage adjustment and the relinking of pensions to inflation remain.
The Spanish labour market remained resilient during the pandemic. The unemployment rate is set to remain stable between 2022 (12.7%) and 2023 (12.3%), with a further decrease to 12.1% in 2024 (IMF). Wage growth should keep a slower pace than prices this year and only grow above inflation in 2024. Spain remains a country with strong inequalities: according to the latest data by Eurostat, 28% of the population was at risk of poverty or social exclusion in 2021 (the fourth-highest level in the EU), despite a relatively high GDP per capita (USD 46,551 in 2022 – IMF).
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 1,418.92 | 1,582.05 | 1,676.54 | 1,751.94 | 1,816.05 |
| GDP (Constant Prices, Annual % Change) | 5.8 | 2.5 | 1.7 | 2.1 | 1.8 |
| GDP per Capita (USD) | 29,800 | 33,090 | 34,933 | 36,373 | 37,578 |
| General Government Balance (in % of GDP) | -4.5 | -3.9 | -2.9 | -3.4 | -3.4 |
| General Government Gross Debt (in % of GDP) | 111.6 | 107.3 | 104.7 | 103.9 | 103.8 |
| Inflation Rate (%) | n/a | 3.5 | 3.9 | 2.1 | 1.8 |
| Unemployment Rate (% of the Labour Force) | 12.9 | 11.8 | 11.3 | 11.1 | 11.0 |
| Current Account (billions USD) | 8.68 | 33.15 | 33.71 | 33.17 | 34.88 |
| Current Account (in % of GDP) | 0.6 | 2.1 | 2.0 | 1.9 | 1.9 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
Agriculture contributes around 2.6% of the Spanish GDP and employs 4% of the workforce (World Bank, latest data available). The country is home to almost one million agricultural and livestock businesses, covering 30 million hectares of land. Spain is the world's largest producer of olive oil and the world's third-largest producer of wine. The country is also one of the largest producers of oranges and strawberries in the world. The main crops are wheat, sugar beet, barley, tomatoes, olives, citrus fruits, grapes and cork. Livestock is also important, especially for pigs and cattle (accounting for 16% and 6% of the agricultural output components, respectively - EU Commission). Data by the Agricultural ministry shows that land destined for biological cultivation accounts for 10.79% of the total arable land, with 58.485 active operators in the sector (in production or distribution). The Ministry of Agriculture, Fisheries and Food (MAPA) has published the first estimate of the main economic figures for the agricultural sector. According to these data, agricultural income has reached EUR 27,861 million in 2022, which represents a decrease of 5.5% with respect to that of 2021 and an increase of 1.1% compared to its value in 2020. The ministry attributes the reduction to higher production costs due to the war in Ukraine and adverse weather conditions.
The industrial sector accounts for 20.4% of GDP and employs one-fifth of the active population. Manufacturing as a whole is the most important sector as it accounts alone for around 12% of GDP (World Bank), although factory activity in Spain shrank for six consecutive months in the second half of 2022 (data INE). The industrial sector is dominated by automotive, textiles, industrial food processing, iron and steel, naval machines, and engineering. New sectors such as outsourcing of electronic components production, information technology, and telecommunications provide high growth potential. The renewable energy sector is also growing at a fast pace. Data from INE show that Spanish industrial production increased by 2.4% in the whole of 2022.
The tertiary sector contributes 67.4% of GDP and employs 76% of the active population. The tourism sector is pivotal for the country’s economy, being Spain’s main source of income (although its contribution to GDP fell from a pre-COVID level of 12.4% in 2019 to 8% in 2021 - INE), as the country is the second-most popular tourist destination in the world. Tourism activity reached EUR 97,1 billion in 2021, as the typical branches of tourism generated 2.27 million jobs, 11.4% of total employment. The banking sector is also important and is composed of ten banking groups under the direct supervision of the Single Supervisory Mechanism (representing more than 90% of the industry) and 48 private banks, 2 saving banks and 61 cooperative banks supervised by Banco de España (European Banking Federation).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 4.1 | 20.2 | 75.8 |
| Value Added (in % of GDP) | 2.4 | 20.8 | 67.7 |
| Value Added (Annual % Change) | -1.1 | 3.3 | 6.5 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
See the country risk analysis provided by Coface.
Since 2020, Prime Minister Pedro Sanchez of the Socialist Party (PSOE, 120 seats out of 350) has led a coalition government supported by Unidas Podemos (UP, far-left, 35 seats) and several smaller parties (including the Catalan separatist ERC).
In December 2022, the parliament approved the left-wing government's budget for 2023 which includes record levels of welfare spending. The budget also plans to invest the EU pandemic recovery funds in infrastructure and renewable energies. This was the latest budget law by the ruling coalition, as elections will take place in November 2023.
Other significant political forces include:
- Republican Left of Catalonia- Catalonia Yes (ERC-Catsi): centre-left, catalan independentism
- Basque Country Unite (EHB): left-wing, Basque independentism
- Canarian Coalition (CC-PNC): centre- to centre-right, Canarian nationalism.
The President of each Autonomous Community is from the majority party of the majority coalition winning elections of the Parliaments of the Regions which take place every 4 years. The President forms a government whose «ministers» are appointed under the title «consejeros» and seconded by a cabinet and director generals, etc. who are in charge of each Department heading the sectors for which the Autonomous Community has jurisdiction in substitution of the Spanish State (single administration).
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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Latest Update: November 2023
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