Spain: the world’s best economy?

It’s recently come to my attention that Spain has the world’s best economy.

Yes, Spain.

Despite the housing crisis and the depressingly low average salary…

Despite the national debt and the recent surge in prices, we’re actually doing better here than everywhere else.

Honestly, when I read the headline in The Economist, I thought they must be joking. But other publications picked up on the story, and it’s not going away.

So let’s look at their argument: maybe Spain’s economy is doing great and I just didn’t know it.

The people at The Economist say they rank countries on five factors: real GDP growth, stock market returns, unemployment, core inflation, and fiscal balances – is the country running a budget surplus or a deficit?

I won’t bore you with data. But let’s talk about it.

Spanish GDP growth in 2024

Spain’s GDP grew about 3% in 2024, which is better than the other big European economies. The UK is growing slowly these days, and Germany barely at all.

But is GDP growth contributing to people’s well-being? It’s an open question.

One of Spain’s main industries is tourism, which just keeps growing. According to The Week, in 2024, Spain received 94 million tourists, which leaves it second only to France in the global tourism ranking.

Tourism has produced some backlash – those two ladies with squirtguns last year, here in Barcelona, sure got some attention in the international press. But as far as I can tell, most people aren’t up in arms about visitors.

Now that I live 15 minutes’ walk from any major attraction, I don’t see many tourists at all, and it’s fine. And Barcelona – that famous tourist hotspot – has dozens of neighborhoods where tourism isn’t an issue at all.

Just don’t walk through Plaza de Cataluña on a weekend.

Also, most of the articles about Spain’s economy cite population growth through immigration as one of the drivers of the increase in GDP: more people means more economic activity.

Not everybody is thrilled about immigration, and also, if GDP grows along with population, the GDP per capita might not grow at all. So I’m skeptical about this one.

Let’s move on.

Inflation in Spain is down

Core inflation in December 2024 was 2.7%, which is way down from the almost 8% at the peak in 2023.

That’s good news.

But what is core inflation? Apparently it’s the rate of inflation with all the food and energy costs taken out – because those things tend to have more volatile prices.

I think it’s what the Spanish papers call inflación subyacente – the word subyacente meaning “underlying”.

In any case, people spend a lot of money on food, gas and electricity, so just removing those things from your calculations is going to give a very partial picture.

Core inflation moves up and down at different times than the regular consumer price index – el IPC in Spanish – and is considered by some a better indicator of economic trends than the price of onions, for example.

Overall inflation – which I’ve just discovered is called “headline inflation” has recently been higher than core inflation, and back in 2022 it was over 10% for a few months.

I wrote about inflation briefly in my article Olive Oil Crisis, when I was paying 9.25€ for a liter of store brand extra virgin. That was blamed on a drought in Andalucía more than anything.

Prices have since gone down to six euros and change, at least for olive oil. It would seem that other food prices have been going down a bit as well. Still, everything is a lot more expensive than it was a decade ago.

Unemployment in Spain

Unemployment is a long-standing issue in Spain.

These days, the unemployment rate is hovering around 10%, which out here is considered to be very good news.

Youth unemployment (for people under 25) on the other hand, is around 25%.

As I’ve written many times before, Spain’s laws make it hard to fire older workers, which means it’s often impossible to hire younger ones. Protecting people who already have jobs is fine, of course, but it comes at the expense of young people who spend prime working years searching for jobs, doing overpriced “masters”, or going abroad to work.

Another thing that’s worth mentioning about unemployment statistics is that governments love manipulating the numbers if they can. So now, for example, there are a couple million people in Spain on contracts called fijo discontinuo – sort of a “seasonal permanent” contract in which people are receiving unemployment checks for part of the year, but aren’t officially counted as “unemployed”.

This is pretty common in my old field, English teaching. Those summer months when my income used to go to zero are a thing of the past, apparently. It’s probably the opposite in tourism: less work in winter, lots of summer jobs.

Can we trust the official unemployment numbers?

None of this is bad for workers.

But it doesn’t exactly give me confidence in the official unemployment numbers, either.

Then there’s the issue of the underground economy – a topic I thought quite a bit about back when I was a part of it. I once wrote about Spain’s attempt to juice its GDP by bringing drugs and prostitution into the official economic data, for example.

These days, I’m a member of the bourgeoisie, and I have accountants to deal with my tax situations both here and in the US. (Use this link for a discount of $25 on your tax prep with Taxes for Expats… thanks!)

But the underground economy is still there, allegedly equivalent to about 17% of Spain’s GDP.

At least some of the officially unemployed are probably working under the table, and a lot of people on contracts may be getting part of their salaries “off the books” in cash.

Another reason to take the government’s numbers with a grain of salt.

Spanish stock market growth in 2024

The Spanish stock exchange is called the IBEX 35, and it closed 2024 with a 15% gain over the previous year.

Interesting fact: the Spanish stock market’s high was way back in 2007 – since then it’s struggled along, failing to gain value. The 15% increase last year brought it up into the same general area it was in ’07, but looking at the last 15 or so years for some context it’s anybody’s guess where it’ll go from here.

In contrast, the S&P 500 over in the US has gone up about 400% over the same time period.

On the other hand, I’m not sure what stock market growth really has to do with the daily lives of regular people.

In Spain, it’s not like in the US: most people here don’t invest in the stock market, they just pay into their obligatory government pensions and hope for the best.

(I’ve looked into opening a pension plan through my bank’s website, and I’m always put off by the high fees.)

I remember back in the day, a Spanish friend was telling me about this, from her perspective: she and her husband didn’t have much savings, and didn’t believe in the stock market.

When they had money, they’d buy a new flat somewhere.

At the time, I thought they were being unreasonable. But looking at what’s actually happened to the stock market vs real estate over the past couple of decades, their strategy seems pretty smart.

The Spanish National Debt

I suspect that most people don’t really know what the stock market is – at best, “the stock market is down” sounds like a smart thing to say, maybe as a synonym for “the economy is bad”.

In reality, the stock market goes up or down in ways that have little to do with the overall economy. And of course, the economy can grow or shrink by a few percent without it necessarily affecting your personal situation.

As usual, I like to be wary of statistics.

But another thing that people like to talk about is the national debt – and I’m not at all convinced that they’ve done their research before speaking.

In any case, Spain has more debt than a lot of countries. But it’s not all bad news. The debt-to-nominal-GDP ratio is currently about 104% and that number has been going down since a spike in 2020, when apparently they borrowed a lot of money. The budget deficit has also been decreasing.

I don’t really feel like spending my afternoon figuring out exactly what “debt-to-nominal-GDP” means, so let’s just say the Spanish debt is high, but not totally out of line with other developed countries.

I’m old enough to remember the Great Recession, when suddenly the debt in the PIGS (Portugal, Italy, Greece and Spain) was threatening to tear Europe apart. This thing where Spain is an economic powerhouse is a bit funny, actually, when I think back to all that.

The Guardian mentions that the Spanish government is hiring more civil servants, running a deficit and spending the EU Covid relief funds to grow the GDP. Here closer to home, El Heraldo de Aragón says that there are half a million new government employees since Pedro Sánchez became president.

So the big question is: will any of this growth be sustainable?

What is a good economy, anyway?

I’m about two-thirds of the way through a book called Spain by Michael Reid.

Reid is, apparently, the former Spain correspondent for The Economist. And since we started with The Economist, let’s end there, too.

I’ve got a few beefs with the book.

One of them is his focus is on government and big business to the exclusion of everyone else – on page 183, he complains about “the vast mass of low-productivity small and micro businesses”, which he defines as anything with under 50 employees.

I think that’s bullshit. But a lot of economic commentators seem to agree with this theory.

As someone who owns a “microbusiness” myself and spends most of my time and money at “low-productivity small businesses” I think the economic journalists are way out of touch.

Those small businesses include basically every street-level business in Spain: they’re the people who are doing useful things in their local community, the shops and services that make Spanish neighborhoods worth living in.

And what’s more, I believe that the government taxing all of us to the brink of extinction, so they can hand money over to the EU, so that the EU can give some of it back to them as “Covid Relief”, so that the government can offer small businesses a bit of money to buy a laptop (after 6 months of red tape and two years’ wait for the payment) is NOT REALLY economic growth.

It’s just more useless bureaucracy that produces nothing.

But that laptop example, that’s the kind of thing these people in government actually do – it’s called the Kit Digital – and it’s been a multi-billion-euro failure. Still, the politicians all get to put it in their report on the digital economy they send up to Brussels, and pat themselves on the back for being so generous with us lowly business owners.

Businesses produce wealth in a society, and government (at best) can set the conditions for that wealth creation. But big government plans to “improve the economy” work very poorly more often than not, and I remain unconvinced.

So, is Spain the world’s best economy?

About half of this macro data cited by The Economist seems to be largely irrelevant to the experience of real people – the people hanging out in my neighborhood, for example. Maybe your neighborhood is different.

So after all this, does Spain have the world’s best economy in 2025?

Sure. As long as you ignore the massive housing crisis, and the fact that a ton of people earn 1300€ a month, and the 25% youth unemployment, and the horrific tax burdens, and the fact that a lot of the economy is based on seasonal jobs in bars and hotels.

If you ignore all those things, we’re doing great.

The “high unemployment and financial instability” vibe we had during the Great Recession was real, and that’s gone. At least here in Catalonia, people seem to be doing okay.

But as we’ve repeatedly seen over the last few decades, things can and do change overnight – and not always for the better.

For now, let’s bask in this prosperity.

Tomorrow may bring something much different.

Prosperously yours,

Daniel AKA Mr Chorizo.

P.S. Another reason I’m suspicious of macro data is that I’ve travelled around and seen wildly different economies in action. On paper, you could look at the GDP per capita of my wife’s hometown down in Kerala, at the southern tip of India, and decide it’s a total dump. But when I go there I have a completely different impression. And of course, GDP per capita in my home state, Arizona, is double what it is here in Catalonia. But that doesn’t mean I’d want to live there.

P.P.S. I recently wrote another article about the (possible) decline of Europe. I’m of the opinion that the idea of constant economic growth might not have much of a future. But for now, that’s the game we’re all playing. What do you think? Hit me up in the comments, right here… Also, if you’re thinking of moving to Spain in 2025 I’ve got some advice for you. Plenty of people are looking at making the jump, but it’s good to be prepared before you do.