Spain’s economy grew by 2.8 per cent in 2025 as domestic demand offsets tariff blues

Spain’s economy expanded by 2.8 per cent in 2025, fuelled by robust household consumption and investment which managed to counteract a sluggish export sector hit by international tariffs.

According to data released on Friday by the national statistics institute (INE), fourth-quarter GDP grew by a higher-than-expected 0.8 per cent. This late surge provided a significant boost to the economy in the final stretch of the year.

Following the publication, Economy Minister Carlos Cuerpo declared that Spain has become the "engine of the continent", noting that the country is growing at more than double the eurozone average—currently projected at around 1.3 per cent. Despite the positive momentum, the final 2.8 per cent figure sits one-tenth of a percentage point below the government’s original macroeconomic forecast.

A closer look at the figures reveals that the year-end upturn was driven almost entirely by domestic demand. Consumption and investment contributed nearly a full percentage point to growth in the final quarter. In contrast, the external sector (exports and imports) shaved two-tenths of a percentage point off the total.

The Ministry of Economy highlighted that the 0.8 per cent quarterly rise was the "highest growth rate of the entire year", attributing the success to "the dynamism of household consumption and investment in an international context of uncertainty".

Year-on-year growth stood at 2.6 per cent for the final quarter—the lowest rate in two years—though the aggregate growth for the full 12 months remained firm at 2.8 per cent.

The INE data also underscores the strength of the Spanish labour market. Full-time equivalent jobs increased by 2.8 per cent year-on-year, while actual hours worked rose by 2.2 per cent. This indicates that job creation remains a primary driver of GDP growth.

While US-imposed tariffs have impacted the eurozone heavily, Spain has weathered the storm better than its neighbours, primarily because the domestic market has been strong enough to sustain a weaker export performance compared to 2024.

By sector, construction was the standout performer with a 2.1 per cent jump in the final quarter. Services grew by 0.8 per cent, while industry and the primary sector also ended the period in positive territory.

Javier Molina, an analyst at eToro, described the combination of strong growth and steady inflation as "unusual" and positive, but issued a word of caution. He noted that the reliance on domestic factors over international competitiveness is a "warning sign" for 2026 and 2027.

"If public investment—largely driven by European funds—does not translate into lasting increases in productivity, growth will tend to cool down once that boost disappears," Molina warned.

Prime Minister Pedro Sánchez took to X (formerly Twitter) to welcome the data, stating that the 2.8 per cent growth puts Spain "in a good position to maintain solid growth in 2026."

Minister Cuerpo added that this "acceleration" creates a "spillover effect" for the coming year. He noted that, mathematically, the Spanish economy was already growing at 1.1 per cent on 1 January 2026, putting it well on its way to meeting the government's 2.2 per cent annual target.