The global economy enters 2025 on uncertain footing, characterised by uneven growth and mounting challenges. According to the recently-published United Nations’ World Economic Situation and Prospects 2025 (WESP) report, while global economic recovery is stabilising, inflation is falling, and growth is gradually improving, the world continues to grapple with significant obstacles such as geopolitical tensions, climate-related impacts and demographic pressures. UN secretary-general António Guterres described these challenges as barriers to economic progress and to achieving better lives for all.
Against this global backdrop, Europe’s recovery remains fragile. The WESP report projects the European Union’s GDP growth to improve from 0.9% in 2024 to 1.3% in 2025 and 1.5% in 2026, driven by easing inflation and resilient labour markets. However, structural weaknesses, demographic shifts and fiscal tightening persist as long-term constraints on growth.
Yet amid these challenges, Spain has emerged as a rare success story, defying regional stagnation with robust growth. By contrast, Germany and France, traditionally Europe’s economic and political heavyweights, find themselves grappling with stagnation and instability. This raises a critical question: why are Germany and France faltering while Spain is flourishing?
Germany, often regarded as Europe’s economic engine, faces profound structural and political challenges. For the second consecutive year, the country’s economy contracted slightly in 2024, plagued by weak business sentiment, slumping investment, declining productivity and a tight fiscal policy.
Germany’s reliance on its manufacturing sector, particularly the automotive industry, has left it vulnerable to global competition. The rapid rise of Chinese electric vehicle exports and tariffs on China have disrupted key export markets, further eroding Germany’s competitive edge. The European Commission forecasted GDP growth of just 0.7% in 2025 and 1.3% in 2026.
Energy costs have also played a critical role in Germany’s economic struggles. As Germany’s growth model traditionally relies on globalisation and affordable energy, the abrupt end of Russian gas imports exposed gaps in its renewable energy infrastructure, leading to higher costs that weighed on industrial output.
Politically, Germany is currently grappling with instability following the collapse of Chancellor Olaf Scholz’s coalition government, leaving the country with a minority administration ahead of early elections on 23 February. The centre-right CDU leads in polls, while the far-right AfD gains traction, sparking public protests against its positions. This uncertainty adds to economic challenges, stalled growth and upcoming debates on migration and energy security, as Germany’s political future hangs in the balance.
France is also facing a turbulent start to 2025, marked by political instability and economic challenges. The ousting of former Prime Minister Michel Barnier over an unconstitutional budget move has left the country without a finalised 2025 budget, adding to uncertainty. New Prime Minister François Bayrou is tasked with stabilising the government and addressing a budget deficit projected to remain at 5-5.5% of GDP, well above the EU’s 3% target. Meanwhile, businesses and markets are uneasy, as rising bond yields increase borrowing costs amid declining investor confidence. The European Commission forecasts France’s GDP growth to decrease in 2025 to 0.8%, with a recovery expected in 2026, reaching 1.4%. Globally, risks like climate disruptions, geopolitical tensions and economic uncertainties amplify the difficulties for Europe’s second-largest economy, leaving its political and economic future in a precarious position.
In contrast to Germany and France, Spain has emerged as a surprising economic outperformer. Its GDP is expected to grow by 2.3% in 2025, well above the EU average. Spain’s diversified economy, less reliant on heavy industry and more focused on services, technology and tourism, has positioned it favourably in the current economic climate.
The tourism sector has been a key driver of Spain’s growth, achieving record-breaking revenues in 2024 as international visitors flocked to its cultural and coastal attractions. Service-oriented economies in the EU like Spain, as noted in the WESP report, continue to benefit from robust consumer spending and resilient tourism.
Political stability has further bolstered Spain’s economic prospects. Unlike many EU nations, Spain has kept far-right political forces largely in check, while the centre-left government pursues policies that balance public spending with long-term growth goals. Economy Minister Carlos Cuerpo recently emphasised the importance of “record exports, international investment and decarbonisation as drivers of Spain’s competitiveness”.
Fiscal responsibility has been a hallmark of Spain’s recent success. Public debt, which peaked during the pandemic, has been reduced significantly, strengthening investor confidence. Spain’s proactive measures to address natural disasters, such as the DANA floods, without derailing fiscal goals, highlight the government’s commitment to sustainable growth.
Spain’s focus on decarbonisation as a core element of its economic strategy also distinguishes it from other EU countries. This emphasis on sustainability has enhanced its resilience, combining environmental responsibility with financial stability.
To conclude, as Europe seeks to navigate its fragile recovery in 2025, Spain’s success offers valuable insights into resilience and adaptability. For Germany and France, addressing their structural weaknesses, overcoming political tensions and embracing innovative policy approaches will be critical to regaining their footing in an era of global uncertainty.
