Spain now stands out as a rare bright spot among Europe’s generally weak economies. Since the start of 2024, the Spanish economy has grown at an average annual rate of 3%, compared to just over 1% for the entire Eurozone. In recent weeks, the global credit rating agency Standard & Poor’s upgraded Spain’s credit rating. The Bank of Spain also raised its growth forecast for 2025 to 2.6%, confirming the country’s position as the fastest-growing major economy in Europe and one of the strongest in the developed world.

A range of factors has supported Spain’s strong growth. Tourism has recovered from the pandemic. The government provides grants from the EU’s Next Generation fund to improve infrastructure; Spain is already the second-largest beneficiary of this fund. Cheap renewable energy has attracted significant foreign direct investment. Previous reforms, including a 2021 initiative to enhance employment stability, have also helped accelerate growth.

But the biggest driver of Spain’s growth has been migration. While other European countries tightened border controls, Spain adopted a more liberal approach. Since 2022, the net annual inflow of migrants has averaged around 600,000, most of them of working age. This expansion of the labor base has pushed employment rates to record highs and helped Spain avoid some of the acute skill shortages experienced by other European counterparts. The population boom has also boosted consumer spending.

A large share of new arrivals has come from Latin America. In 2023, migrants from this region accounted for about 70% of Spain’s population increase, according to JPMorgan Chase. Shared language, cultural similarities, and established networks have facilitated their integration into the labor market and broad acceptance in society. Migration flows are expected to continue, especially after Spain recently simplified legal migration pathways and planned to grant residence and work permits to more undocumented migrants.

Despite its success so far, Spain must carefully manage the migrant-driven growth surge. Although Spain’s real GDP—measured by purchasing power parity—has risen by about 6.8% since 2019, GDP per capita has increased by only 3.1%. Migrants have mainly filled gaps in low value-added sectors, including hospitality and construction. To ensure rising living standards, Spain must also improve its slow productivity growth. The IMF recommends simplifying regulations and providing tax incentives to increase the availability of long-term venture capital, especially to support small businesses.

Skills-upgrading initiatives would support growth and attract more foreign direct investment in high-end service sectors, including finance, IT consulting, and engineering. Indeed, Spain still has the highest unemployment rate in the European Union.

Moreover, policymakers should anticipate broader social and economic challenges that could hinder the sustainability of high migrant inflows. Most Spaniards support migration, but if the government fails to provide adequate access to affordable housing and public services, openness to newcomers could erode. Rents are already expensive for many, and Spain has seen tensions between locals and people of North African origin. The fragmented political environment in Spain could also pose a significant obstacle to advancing economic progress. The minority government led by Pedro Sánchez has struggled to pass key legislation.

Overall, Spain has shown other advanced economies how migration can be an important source of economic resilience, even amid domestic and external instability. To remain a model to follow, Spain must turn its sudden demographic wealth into a key driver of lasting prosperity.