Forsaking Castile’s arid tableland, the high-speed train shoots out of the mountain tunnel into another world: the lush uplands of Asturias. The economic effect of the new rail link between Madrid and Oviedo, the capital of the northern Spanish region, has been “astonishing”, says Adrián Barbón, head of the regional government.
A million passengers have used the service since it opened a year ago, double the predicted figure. The stretch of tunnels is a feat of Spanish engineering and opening the route has contributed to the region’s record numbers of tourists and jobs.
The boom in Asturias (population: one million) represents in miniature Spain’s bullish economic growth. Pedro Sánchez, Spain’s Socialist prime minister, is fond of saying his country is going “like a rocket”. He told an audience in the region this month: “Asturias and Spain are experiencing one of the best moments in history in terms of economic growth and employment.”
A decade after the country was written off as a basket case, The Economist named Spain as the best-performing rich economy of 2024. The IMF shared its view. Last year Spain’s GDP grew by 3.2 per cent and its central bank predicts at least 2.5 per cent growth this year, leading southern Europe’s rally as the continent’s northern economic engines stall.
The success of the eurozone’s fourth-largest economy is all the more notable against the backdrop of Sánchez’s effectively paralysed and fragile minority government, which has been unable to pass a budget since he retained power after inconclusive elections in 2023. He has, however, managed to negotiate a pensions rise and extend free public transport concessions.
Help from abroad
The increase in GDP is fuelled in part by Spain’s focus on tourism, economists say, which explains why it took longer to recover from the pandemic but is now flourishing. Yet that is only one factor behind the growth.
“Competitiveness is one reason, due to relatively cheap labour costs, combined with low energy prices, such as that of electricity, which is at least 20 per cent lower than the eurozone average,” said Raymond Torres, director for macroeconomic analysis at Funcas, an economics think tank.
Spain’s energy prices are low partly because its renewable power generation has soared in the past decade. It generated almost 60 per cent of its electricity from renewable energy in the first half of 2024, offsetting the impact of reduced supplies of natural gas from Russia and higher overall power prices.
Foreign direct investment in Spain is soaring too. It stood at €5.68 billion in 2023, up 12 per cent from the previous year.
The other main driver of the economy is a surge in immigration, Torres said, “mostly Latin Americans, who assimilate easily due to a common language”. He added: “It’s possible that nearly half of economic growth over the last two years reflects the integration of foreign labour.”
Since 2019 the country’s foreign-born workforce has risen by about 1.2 million, Sánchez said in October. “There are 150,000 job vacancies in Spain. There is a need for labour. Therefore it is imperative that Europe builds a positive discourse on migration.”
But Torres and other economists urge caution. Not all is sunny in the Spanish economy. Attesting to that is the vast majority of Spaniards who cite the “economic situation” as a major concern in opinion polls.
Victims of their own success
Discontent is in the air in Ana Villanueva’s restaurant, in Oviedo’s historic city centre, as waiters splash the region’s famed cider from a height into glasses, in keeping with the Asturian tradition. Villanueva concedes that business is good but complains that “taxes are too high for job creators, the government is giving too many handouts and prices are too high and so the economy is bad”.
Barbón, a Socialist, has said he is battling “popular misconceptions”. Asturias generated employment at a faster rate than the country as a whole and created 17,000 new jobs in 2023. Nationally, Sánchez has said, 2.3 million jobs have been created since he came to power in 2018, which he argued was due in part to his labour reforms.
The number of working-age foreigners has increased from 2.8 million in 2018 to 3.9 million in 2024.
Of the jobs created last year, 40 per cent were filled by foreigners.
Immigrant labour has enabled the tourism sector to flourish. Barbón estimates that tourism in Asturias has risen as much as 20 per cent year on year, reflecting the rise in Spain as a whole, having welcomed a record 94 million foreign visitors last year — 10 per cent more than in 2023. Tourism represents around 13 per cent of the economy in the world’s most-visited country after France.
Home to wolves and bears, tourism at the Somiedo Natural Park in Asturias’s mountains has soared in recent years. “The number of the park’s visitors has shot up from 20,000 to 30,000, with notably more foreigners,” said Belarmino Fernandez, the local mayor.
Barbón has acknowledged growing anti-tourism sentiment, which has prompted protests in other parts of Spain. In response, Asturias has reformed its law to limit tourist flats. “Asturias long ago introduced laws to protect its natural resources, its coastline and mountains,” he said.
Carlos Cuerpo, the national economy minister, said tourism was becoming more balanced, noting that visits are growing fastest outside the peak months of July and August. The geographic distribution is also becoming more even, he said, visitors increasingly heading to northern parts of Spain such as Asturias as well as the Mediterranean coast.
According to Fernandez, a local ecology group has protested about increased numbers of tourists in the Somiedo park and the creation of a large viewing point. “We have created more car parks to avoid congestion … and have started bus services,” he said. “But we have probably reached the optimum number of tourists now.”
For him, the bigger issue is filling jobs: “We need more workers to meet the demand.”
The majority of immigrants work in low-paid, low-skilled sectors such as agriculture, hospitality and construction, where worker productivity is low. “A developing population is fine — other countries have declining populations — but the GDP per capita, as distinct from headline GDP, has not grown that much. Productivity is poor,” said Jordi Gual, an economics professor at Spain’s IESE Business School and former chairman of CaixaBank.
Industrial relations
Guiding The Times through Pozo Sotón, a disused coal mine 400 metres below ground in Asturias, a miner laments the end of the industry in the region. Spain has been closing mines since the 1990s but shut its last working mineshaft only last month in Asturias. “There is nothing in our area — only 25 per cent unemployment,” he says.
National unemployment is falling but still stands at more than 10 per cent. Youth unemployment is above 26 per cent — the highest rate in the EU and almost double the bloc’s average.
“This is the most worrisome part of the Spanish economy,” said Gual.
As the descendant of three generations of Asturian coal miners, Barbón is keenly aware of his region’s need for diversification away from heavy industry. He is betting on renewable energy and backing, for example, the international energy giant EDP’s projects to boost the production and storage of green hydrogen in Soto de Ribera power station.
Spain, a world leader in the sector, won contracts for 54 new renewable energy projects in 2024, ranking third behind the United States and the UK. Gual noted, however, that although non-tourist exports such as tech and engineering services are also growing, public spending — which accounts for as much as 59 per cent of Spain’s growth since 2019, according to Funcas — is worryingly high. Spain will also need to find money to increase defence spending, which is 1.3 per cent of GDP against a Nato target of at least 2 per cent.
Tourism and immigration are fuelling a housing crisis and overall investment is low, Gual added. He predicted that, in accordance with IMF forecasts, growth will taper off.
Playing the markets
Sánchez’s government recently announced a 100 per cent tax on people from outside of the EU buying homes in Spain. The tax is viewed as a populist announcement that will not be passed and given the relatively small number of house deals it represents (about 2 per cent) economists envisage it having little economic impact.
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Public debt stands at 102.5 per cent of GDP and analysts warn that the €140 billion of EU pandemic recovery funds will soon be spent.
Barbón, however, is more optimistic. In the context of climate change, Asturias’s milder weather and plentiful water supply, he says, make the region “a land of opportunity”.
So too, more generally, is Spain, according to Torres. “It has a unique opportunity to create its own road to sustained economic growth and prosperity and improve its position in Europe. But it must seize it by, for example, putting the public budget in order.”
Will it do so? Torres has doubts. “There are many weaknesses — for example, in the education system — and nobody is talking about them,” he said. “The political paralysis makes it very difficult.”