Costa del Capital: How to capitalize on Spain's rapid economic growth

Spain experienced one of Europe's deepest recessions during the pandemic and was long overshadowed by investment interest. But an impressive economic surge has propelled it to the top of the growth charts among the EU's largest economies, with the country consistently overtaking France and Germany between 2023 and 2025, beating forecasts for consumption, investment and the labor market. Goldman Sachs calls it the fastest-growing eurozone economy with a strong GDP, robust domestic demand and strong export potential.

And this is no longer just a post-coveted rebound in tourism. According to Astero Falcon portfolio manager Alena Nikolaeva, behind this growth there is a structural reorganization. Which local companies should investors pay attention to?

Spain stands out for its resilience to trade conflicts. Its exports are less dependent on China than those of Germany, for example, and its focus on tourism and consumer services gives it a kind of immunity to the global industrial downturn.

Spain's GDP for the second quarter of 2025 grew 0.7% quarter-on-quarter and 2.8% year-on-year, exceeding analysts' consensus forecast.

The labor market remains strong, with unemployment down to 10.3%, the lowest since 2008. Spain attracts more migrants relative to its population than France, Germany or Italy, and does so in a targeted manner with a focus on skilled labor. This influx of labor not only compensates for an aging population, but also supports domestic demand, reduces structural unemployment, and expands the economy's potential. As a result, unemployment, which has long been a weak link, has fallen to its lowest levels in 17 years and, according to the European Commission's forecasts, will fall below 10% as early as 2026.

Inflation is still under control, at an annualized rate of 2.7% in July, despite risks of a short-term acceleration due to seasonal factors.

Cheap electricity, a saturated labor market and a current account surplus allow Spain to maintain growth even in relatively tight financial conditions.

The recovery of the services sector is an important driver of growth. Tourism, a historical driver of the Spanish economy, is flourishing after the COVID-19 pandemic.

In 2023, passenger traffic at Spanish airports reached 283 million people, exceeding the pre-pandemic level of 2019. In 2024, the country was visited by almost 94 million tourists, which became the highest indicator in the history of observations. In the first half of 2025, Spain welcomed 44.5 million visitors (up 4.7% year-on-year), and their spending grew by 7.5% to reach €59.6 billion. According to the World Travel & Tourism Council's forecast, a record 98 million to 100 million tourists may visit the country in 2025. Exceltur estimates that tourism will account for 13.2% of GDP in 2025, which emphasizes its systemic role in economic recovery.

However, the secret of Spain's success, let's call it Costa del Capital, is much broader. The economy is gradually shifting toward high-performance services - finance, IT and other professional services. According to Goldman Sachs, the share of such industries in Spain's GDP is now 3 percentage points higher than before the pandemic, it increased by 1 p.p. more than in the rest of the eurozone.

This seemingly imperceptible shift towards capital-intensive services often escapes attention, but it is what is shaping a more sustainable and diversified growth model.

Of course, the country also has challenges. After massive spending to fight the coronavirus, the national debt is 103.5% of GDP, as of July 2025. By this indicator, Spain ranks fifth in the EU - after Greece, Italy, France and Belgium. Its reduction is a priority for the country's financial authorities.

The tourism boom is also a two-pronged stick: in popular resorts, locals protest against the excessive flow of people, and the overheated housing market, especially in Barcelona and Madrid, makes real estate unaffordable for Spaniards themselves.

Politics is also under pressure. The lack of a sustainable parliamentary majority is hampering the adoption of reforms and the implementation of the EU recovery plan. But for now, it's not that it's getting in the way. On the contrary, the slow absorption of European funds means that Spain will receive an additional fiscal stimulus for growth in 2026-2027.

As a result, the pros outweigh the cons, and Spain is steadily becoming a leader in the region, which, in turn, attracts the attention of investors. And they are not only looking at the obvious flagships like Inditex.

Spain is long ago not just about Zara and travel. Today it is a market of sustainable, global and growing companies that benefit from long-term economic and technological trends.

Spain's financial sector has had a difficult time over the past 15 years, but is now showing excellent results. Banks, including small banks, are benefiting from economic recovery, growth in consumer and corporate lending, as well as steady demand for mortgages. According to Bloomberg estimates, banks have already reduced allocations to reserves amid a decline in the share of non-performing loans (NPLs), and the total CET1 buffer (a key indicator of core capital adequacy) in the system exceeds €46 billion, which creates room for buyback programs and potential M&A deals.

- Banco Santander is the country's largest bank and one of the flagships of the European financial market. At the end of the second quarter of 2025, CET1 was 13%, while the level of non-performing loans (NPLs) remains at the minimum of recent years. The bank pays regular dividends and conducts share buybacks, and valuations remain low, with a P/E (price-to-earnings) ratio below 6. Latin America accounts for about 30% of group profit, with weakness in Brazil offset by growth in Mexico and Chile. Profitability remains stable in the US and fee income growth in Europe. With more than 160 million customers, geographic diversification and strong operating efficiency, Santander remains one of the favorites for long-term investors.

- BBVA (Banco Bilbao Vizcaya Argentaria), the country's second largest bank, is strengthening its positions in Mexico (more than 40% of the bank's profit) and Turkey. On the back of record net income and capital growth, the bank raised its ROTE(Return on Tangible Equity, the company's return on tangible assets) forecast to 22% by 2028. The merger with Sabadell Bank did not materialize, but the attempt itself underscores the strategic ambition for consolidation.

- Among the players with a domestic focus is CaixaBank, which has become Spain's largest retail bank following its integration with Bankia. It shows double-digit profit growth, while cost reductions and reserve releases are supporting margins. The bank estimates that Spanish house price growth will reach 9% year-on-year in 2025, which has a positive impact on collateral and loan book quality. High sensitivity to ECB rates also creates upside potential if the regulator's current policy remains in place.

Spain seeks to reduce its dependence on energy imports and relies on the development of renewable sources. In 2023, according to Red Eléctrica de España (now Redeia), the share of "green" generation exceeded 50% of the electricity production structure for the first time. This trend will continue in 2025, with wind and solar generation growing particularly strongly.

- Iberdrola is the country's largest energy company, which over the past 15 years has become a global leader in wind generation and power grids. Despite moderate earnings growth rates, its securities are consistently included in portfolios focused on sustainable development and responsible investing: the company has stable free cash flow, a 30% margin and a dividend yield of about 4.1%.

- Acciona and subsidiary Acciona Energía are niche players in renewable energy with projects ranging from wind farms to solar farms around the world. In the first half of 2025, Acciona's revenue grew by 5.2% to €9.23 billion, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of €1.56 billion, a plus of 57.3%. Revenue growth in the first half of the year was 10.2% in the energy segment and 8.2% in the infrastructure segment. The company is expanding its presence in Latin America and developing hydrogen and energy storage.

- Oil and gas giant Repsol is consistently transforming into a multi-energy platform. In the first half of the year, the company reported a 36.4% year-on-year decline in adjusted earnings to €1.4 billion. Repsol plans to allocate up to €5.4 billion for its buyback program through 2028. In addition, it maintains upstream profitability, develops renewable energy sources, reduces its debt load and remains flexible in capital allocation.

Other interesting issuers include Endesa, controlled by Italy's Enel. It focuses on solar generation and grid expansion. Another example is Redeia, a system operator of the national electricity grid and an important infrastructure player.

Spain remains Europe's largest tourist destination and the sector's revitalization continues in 2025. Summer traffic at airports is once again hitting records and bookings for the season are showing steady growth.

Which companies are worth looking at here?

- IAG Airlines, which owns Iberia, Vueling and British Airways. Despite pressure from competitors, the company exceeded analysts' expectations for operating profit in the second quarter of 2025 by 16%: the figure rose by 35.4% to €1.7 billion. Revenue increased by 8% to €15.9 billion, also exceeding market expectations. Most of the growth came from increased demand for air transportation. But with winter ahead, investors will be watching IAG's margins.

- One of the largest Spanish hotel operators Melia Hotels. The company is actively restructuring its portfolio, reducing the share of unprofitable facilities. In the second quarter of 2025, the company's revenue grew by 5.1% year-on-year to €547 million, profit - by 90% to €69 million. Hotel occupancy exceeded 60%, and the average revenue per room (RevPAR) increased by 6%. Melia Hotels benefited from the fact that tourists began to choose more expensive options, as well as from the growth of domestic tourism.

- Spanish construction and infrastructure giant Ferrovial owns stakes in London's Heathrow Airport and Canada's Toronto Pearson, operates the 407 ETR highway in Canada and a number of infrastructure projects in the US under concession agreements. Adjusted EBITDA in the first quarter of 2025 rose 19.1% year-on-year to €309 million, with revenue up 7.4% to €2.1 billion, an order book at an all-time high of €17.2 billion, and earnings from foreign assets outperforming the domestic market. The move of the headquarters to the Netherlands allowed to optimize taxation and simplify the entry into the US market.

Although Spain is not considered a technology hub, the country has several notable issuers in the sector.

- Amadeus IT, a key provider of booking software, serves airlines and hotels worldwide. Its revenue in the first half of the year rose 6.8% to €3.3 billion, with operating profit up 8.1% to €938.1 million. Despite currency risks and pressure on margins in 2025, the company remains one of the leaders in the Global Distribution Systems (GDS) segment - platforms that connect airlines, hotels and other service providers with agents and online booking services. Demand for business travel and the digitalization of the industry are supporting growth.

- Telefónica is the largest telecom operator in Spain with a high dividend yield of more than 6.4%. The company increased revenue in the second quarter by 12.5% to €566 million, while its loss amounted to €51 million. Telefónica is undergoing restructuring: reducing debt, monetizing assets in Latin America and focusing on the growth of average revenue per user (ARPU, average revenue per user) and stable cash flows.

- Cellnex is the leading independent telecom tower operator in Europe. Cellnex Telecom's Q2 2025 organic revenue grew by 6% to €1.95 billion and EBITDA by 8.1% to €1.16 billion. After an active M&A cycle, the company is now focusing on debt reduction and sustainable free cash flow. Cellnex remains a beneficiary of mobile traffic growth and 5G development.

Does not constitute an investment recommendation.

This article was AI-translated and verified by a human editor