Spain is approaching the final year for executing the remaining €36.5 billion of the almost €80 billion of non-repayable grants from the NextGenerationEU (NGEU) programme, which began in 2021 to help countries recover from the economic and social damage caused by the COVID-19 pandemic, and build a greener, more digital and more resilient future.
According to the Bank of Spain, 45% of companies with projects financed by NGEU would not have happened without the programme, and 31% would have undertaken only part of them.
The programme, the second largest after Italy’s, ends in August 2026 and also consists of up to an additional €83 billion in loans, very little of which has yet been taken up. The total funds account for 13% of Spain’s 2019 GDP.
In terms of economic output, Spain was the hardest hit euro zone country by COVID. Its GDP plummeted 10.9% in 2020 compared with an average euro-zone fall of 6%, due, among other factors, to a dramatic fall in the number of international tourists from 83.5 million in 2019 to 18.9 million in 2020, the same count as in 1969. Tourism is a cornerstone of the economy, but also its Achilles heel.
The pre-COVID GDP was recovered in 2022 and since then the economy has grown strongly, aided by the NGEU funds but less than was initially expected because of the slow absorption of funds (see Figure 1). GDP growth in 2024 (with 94 million tourists) of 3.2% was four times higher than the euro-zone average, and this year’s forecast growth of 2.5% will be around three times higher than the average.
The green transition and the digital transformation are the focus of 66% of the funds, and social spending 22%. A record 57% of the total energy mix in 2024 came from renewables. According to the Bank of Spain, 45% of companies with projects financed by NGEU would not have happened without the programme, and 31% would have undertaken only part of them.
Once the exact cause of Spain’s recent unprecedented power outage on 28 April, which left all the country and Portugal and parts of southern France without electricity for at least 10 hours, is known, and it might be related to increased reliance on renewable energy and grid issues, NGEU funds might help prevent a recurrence.
The cornerstone of the NGEU programme is the performance-based Recovery and Resilience Facility (RRF). RRF funds are disbursed when countries have satisfactorily met key steps in implementing reforms and investments. These steps are referred to as milestones and targets. Milestones represent a qualitative implementation step and targets a quantitative implementation step.
The focus in the first three years, and pace at which funds were released, was on structural reforms in areas such as ensuring the sustainability of the public pension system, reducing the high rate of temporary employment, and making the tax system more equitable and progressive, while increasing green taxation, improving the acute shortage of social housing, taking steps to lower the early school-leaving rate and boosting social protection.
Pension reforms were introduced between 2021 and 2023, but the jury is still out on whether they are sufficient to make the pay-as-you-go system more sustainable. Experts believe the reforms will considerably increase pension expenditure over the next decades without introducing significant compensating measures in terms of expenditure containment or revenue increases. While the government is optimistic, most academics and private analysts are seriously concerned about the effects of the reform on the financial sustainability of the system, or rather, about the danger that rapidly rising pension expenditure may leave Spain with little fiscal margin for anything else.[1]
More successful and broadly welcomed are the reforms reducing labour-market duality (insiders on permanent contracts and outsiders on temporary contracts). The temporary employment rate (those on precarious contracts) has come down from an average of almost 30% between 2014 and 2019 to below 13% (it is still high in the public sector at around 30%), producing greater employment stability.
The focus between 2024 and 2026 is on attaining milestones linked to the investments. The main ones include implementing low-emission zones in towns and cities, increasing the use of digital technologies in 171,000 SMEs, modernising irrigation across 160,000 hectares, renovating 285,000 homes with a minimum energy saving of 30%, deploying 285,000 electric vehicles and charging points, extending 5G networks to 75% of the population, restoring 145km of degraded coastal areas and attracting more foreign talent.
Funds will also be used to alleviate the acute housing crisis, particularly the social rental sector. Spain’s stock of this type of housing is almost the lowest in the EU (a paltry 2.5% of the total housing stock, far below the EU average of 8%). In the Netherlands it is 35%. Spain is also the EU country with the highest percentage of tenants at risk of poverty or social exclusion. The proportion of homes owned by those under 35 dropped from 15% in 2002 to 7% in 2022. Spaniards leave home on average at the age of 30 (EU average: 26).
The government announced last month it would invest €1.3 billion under the public-private PERTE scheme in industrialised housing –a prefabricated construction method that can be quickly assembled on site–. The aim is to build 15,000 (rising to 20,000) homes a year. That, however, is a drop in the ocean. Spain has been much slower than other countries to adopt this method. The Bank of Spain calculated a couple of years ago that the country needed at least 600,000 new homes.
That figure is already out of date. The continued influx of immigrants, needed to work in sectors such as agriculture, construction and looking after the elderly, whilst more and more accommodation is being dedicated exclusively to international tourists, is aggravating the housing crisis. Spain’s population rose by 1.1 million between 2023 and the beginning of 2025, mostly due to immigration.
The per capita distribution of the NGEU funds by region varies considerably. Aragon was the region that benefited the most between 2021 and 2024 (see Figure 2). Significant Investments there have been made in renewables and the Stellantis and CATL joint venture to build an all-new lithium iron phosphate (LFP) battery plant for electric vehicles. Extremadura has used funds to improve railway infrastructure and Castile and León for agrifood.
The impact of the funds on improving Spain’s low productivity has been less than expected. The jobs created have been concentrated in sectors with lower added value. According to Rafael Doménech, BBVA’s chief economist, GDP per worker has only grown by one-fifth of a percent since before the pandemic. The persistence of bureaucratic barriers and ineffective regulations has slowed down the development of projects. These are challenges that need to be overcome.
