Business is booming at the famed El Pimpi bar in the Mediterranean port of Málaga, as visitors enjoy traditional seafood tapaswith generous glasses of sangría, beer, and wine. Sales are up 10% annually, with tourists coming throughout the year, not just in summer, says María José Ariza, a marketing manager.

Spain is set to become the world’s fastest-growing major advanced economy in 2024, with a projected 2.9% growth in GDP, four times the pace of the Eurozone, and even edging out the US’ red-hot economy. Record-breaking tourism, a growing immigrant-based workforce, rising consumption and public spending, and easing inflation and interest rates are producing positive numbers.

The economic boom is also generating a backlash. Locals in tourist hotspots such as Málaga protest that Airbnb short-term rentals price them out of the market. Regional tensions remain high, including Catalan and Basque nationalism. Anti-immigrant fever, so prevalent elsewhere in Europe, is rising. Deadly record-breaking rainfalls led to angry anti-government demonstrations.

The 2008 financial crisis and the COVID-19 pandemic shook the pillars of the Spanish economy. Construction collapsed. Tourism tanked, plummeting by 90% in 2020, costing the country more than €285bn and up to 800,000 jobs. Both have bounced back. Over 85m tourists arrived in 2023; an additional 10m are expected this year.

Tourism is diversifying. Visitors are drawn to picturesque northern mountains, not just traditional southern beaches, and traveling during autumn and winter, not just bustling spring and summer. A surging number of Americans are rushing to check Spain off their list. Forget down-market alcohol-fueled mass tourism. In 2023, international tourists headed to upscale hotel establishments, increasing average spending per person. This year, tourism is expected to generate nearly €130bn in revenue.

The tourist boom fuels other growth sectors. Construction – including consultancy, engineering, and architecture — is gearing up to meet this increased demand. “In the last decade, non-tourist sectors have grown more than 110%,” says Judith Arnal, a Senior Researcher at the Madrid-based Elcano Royal Institute.

Immigrants are vital to meeting this increased demand. Since 2000, the Spanish population has grown by eight million, far outpacing other European countries. This sharp increase, driven by liberalized immigration policies, has proved vital in overcoming Spain’s declining birth rate and rising death rate. Immigrants comprise 18% of the country’s population, and the vast majority are of working age, filling holes in the service sector, construction, and agriculture. This month, the government announced plans to give residency and official work permits to almost one million undocumented migrants.

But all that glitters is not gold. Spain’s low-productivity model generates low incomes. Average monthly salaries run €1,134, almost half German levels. Working poverty remains prevalent: almost 14% of Spaniards and close to 30% of non-EU immigrants receive wages below the poverty line, according to a report by Oxfam Intermón. “Creating employment is not enough; we must create quality employment,” says Alejandro García-Gil, Head of Social Protection and Employment Policies at Oxfam Intermón.

Social tensions are rising. As Airbnb and other websites fuel a boom in short-term holiday rentals, locals are angry at being priced out of apartments. In Madrid, thousands marched, shaking their house keys in a symbolic resignation gesture called llaverazo. Two-thirds of Spaniards aged between 18 and 34 still live with their parents, 10% more than in 2010.

Municipal governments have begun to intervene. Barcelona’s mayor Jaume Collboni raised the tourist tax for cruise passengers staying for less than 12 hours and plans to stop renewing tourist apartment licenses. This month, Málaga’s city council banned new short-term apartment rentals in its most “tourist-saturated” areas.

The backlash may be counterproductive. Airbnb warns that it will increase hotel prices as supply shrinks, citing examples from New York, Portugal, and Scotland. While tourist rentals comprise just 1% of the total number of homes, 14% of the housing stock remains vacant, according to Sara Rodríguez, spokesperson for Airbnb Marketing Services for Spain and Portugal.

Recent deadly floods have wreaked havoc, causing more than 200 deaths, leaving hundreds missing, and sweeping away cars, homes, and shops. In Valencia, volunteers and workers continue clearing debris at Hidrau Model, a firm specializing in producing piano stools. Floods destroyed 95% of the family-run business’s inventory and machinery, estimating a loss of €1.5m, according to CEO Raúl Romera. Just days before the catastrophe, the company, about to celebrate its 50th anniversary – secured contracts in Asia and finalized an order to the US. It now must start from scratch.

Tourism has also suffered. In Valencia, hotel occupancy, usually at 90%, stands at 50%.“The perception is that the capital is destroyed, which has led to massive cancellations,” says Manuel Espinar, President of the Hospitality and Tourism Businesses Confederation in Valencia. Espinar himself lost two businesses.

The floods have deepened the country’s political polarization, with the socialist-run federal government in Madrid blaming Valencia’s conservative leaders. The tensions could hurt the economy. “Political rancor is embodied in the government’s inability to approve the 2025 national budget, which will likely fail to pass,” says Antonio Lorenzo, Director of elEconomista newspaper.

Given these shocks, Lorenzo and other experts wonder how long the country’s upward trend will continue. Some foresee a gradual slowing in GDP, reaching 1% by the decade’s end. Despite these threats, Spain has emerged for now as a European bright spot. That is worth many marineras at El Pimpi and other busy Spanish bars.

Natalia Hidalgo Martínez is a Spanish-based freelance writer covering transatlantic relations between the US and Europe, European security, and geoeconomics.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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