Their resilience is driven by a booming tourism sector, demographic improvements, and effective macroeconomic policies, which have led to an upgraded long-term growth outlook.

Spain was the fastest-growing major economy in 2024, with a 3.2% GDP expansion, while Portugal, despite a mid-year slowdown, ended on a strong note. Both economies have benefitted from a service-oriented structure and strong net migration flows, as well as energy policies that reduced dependence on Russian gas. These factors have helped mitigate external economic shocks, setting them apart from other European nations.

Despite their similarities, Spain and Portugal rely on different economic engines. Portugal’s growth has been fueled by consumer spending and investment, whereas Spain has leaned more on government consumption and net exports. This divergence reflects differences in economic policies and sectoral strengths.

Another key development is the significant reduction in macro-financial vulnerabilities. Once plagued by large current account deficits, both nations have transformed them into surpluses, thanks to a booming tourism industry and strong exports in high-value-added services like technology. Consequently, their external debt has fallen to around 50% of GDP, nearly half of what it was a decade ago. Portugal has excelled in fiscal management, running budget surpluses for three consecutive years, boosting investor confidence, and narrowing bond yield spreads. Spain, while maintaining a deficit, remains within eurozone norms.

The labor market has also improved considerably. Portugal’s unemployment rate stands at 6.5%, close to the eurozone average, while Spain’s has declined to 10.6% from a peak of 26.3% in 2013. Spain has also seen substantial employment growth, contributing a significant share of eurozone job creation. Labor reforms have further stabilized Spain’s workforce, reducing temporary contracts and fostering more sustainable employment growth.

Looking ahead, Oxford Economics projects that both nations will grow in line with the eurozone average over the next decade, an optimistic revision from prior expectations. Strong migration trends, attracting both skilled workers and digital nomads, support this outlook. However, challenges remain low value-added jobs, weak productivity, and investment constraints continue to hinder income convergence with the rest of the eurozone. High housing costs and regulatory risks could also slow foreign investment.

Despite these hurdles, Spain and Portugal’s economic resilience and strategic improvements suggest that their strong performance is far from temporary. As they continue to evolve and address structural weaknesses, their economic prospects remain promising within an otherwise struggling eurozone.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes