Spain’s Economic Resilience Fuels Eurozone Growth in 2025 Despite Regional Variations

Optimistic Growth for Spain Amid Eurozone Economic Challenges
S&P Global Ratings forecasts a 1.2% growth for the eurozone economy in 2025, a rise from 0.8% in 2024. A significant contributor to this optimistic outlook is Spain, which is expected to perform well economically despite broader regional challenges. Spain’s GDP growth is largely attributed to strong industrial production, a rebounding tourism sector, and increasing employment. Spain’s economic structure is diversifying, with consumer spending playing a key role and employment dynamics supported by labour market reforms. These reforms have reduced vulnerability to economic volatility, making Spain one of the key performers in the eurozone for the year ahead.

Challenges for Germany and Southern Europe
Germany’s economy is expected to underperform in the early part of 2025, with a predicted growth rate of just 0.4% in the first quarter, significantly below the eurozone’s expected average of 1.2%. This stagnation is attributed to structural challenges, including an aging workforce and a shift away from the export model that once thrived on medium-innovation products. The country’s economic model, dependent on cheap energy and labor, is no longer as viable, which has caused a “crisis of confidence” according to S&P’s chief EMEA economist, Sylvain Broyer. Other southern European economies, such as Italy, are also expected to face economic difficulties, particularly as government programs like the ‘superbonus’ wind down.

Factors Driving Spain’s Growth and Economic Stability
Spain’s strong economic performance in 2025 is multifaceted. Industrial production continues to expand, and employment growth remains robust, aided by labour market reforms that favor permanent contracts over temporary ones. These reforms have helped stabilize the labor market, leading to increased consumer confidence and spending. Moreover, Spanish households have managed to deleverage significantly, with debt levels now comparable to those of German households, significantly reducing financial vulnerability. Spanish households have also shifted toward fixed-rate mortgages, insulating them from interest rate fluctuations and further stabilizing the economy. These developments position Spain as a standout performer in the eurozone, far outperforming Italy and other southern European countries facing economic slowdowns.

Impact of ECB’s Policy and Geopolitical Risks
S&P Global Ratings predicts that the European Central Bank (ECB) will accelerate interest rate cuts, reaching a policy rate of 2.5% by mid-2025. This move, anticipated to support consumer spending and investment, will likely provide a further boost to Spain’s economic recovery. However, the eurozone’s growth is also subject to significant geopolitical risks. The potential impact of higher tariffs, especially from the US, and the evolving military spending dynamics within NATO could dampen trade growth. S&P estimates that if EU countries meet the NATO target of 2% military spending, eurozone growth could improve by 0.4%. However, higher tariffs and trade tensions may offset some of these gains, particularly for heavily export-dependent economies like Germany.