Opportunities in Spain's Resilient Economy Amid Revised Growth Forecasts

Spain's economy has emerged as a standout performer in Europe, with domestic demand propelling growth even as global headwinds loom. Despite revised GDP forecasts for 2025—now projected at 2.4% by the OECD, down from earlier estimates—the nation's resilience is rooted in two key sectors: consumer discretionary spending and housing construction. For investors, these areas present compelling opportunities, provided they navigate geopolitical risks with caution.

The Resilience Engine: Private Consumption and Housing

Spain's economic momentum is being driven by factors largely insulated from external shocks. Private consumption, fueled by a robust labor market and falling inflation, remains the primary growth lever. Unemployment has dropped to 10.9%, with social security affiliations rising 2.3% year-on-year, signaling sustained job creation. Real income gains and lower energy costs have bolstered household spending power, particularly in sectors like tourism and retail.

Meanwhile, housing construction is surging, supported by historically low borrowing costs and the Recovery, Transformation, and Resilience Plan (RTRP). Housing credit to households grew 1.4% annually through March 2025, while construction activity tied to infrastructure and green initiatives under the RTRP is expected to accelerate. This bodes well for sectors tied to real estate and building materials.

Sector-Specific Investment Strategies

1. Consumer Discretionary: Riding the Spending Wave

Spain's consumer sector is primed for growth, with tourism and services exports—now contributing 6.7% of GDP—driving demand. Investors should prioritize consumer staples and retail stocks, particularly those benefiting from rising disposable incomes.

• Key Plays:
• Mercadona: A dominant supermarket chain with strong pricing power and a loyal customer base.
• Inditex (Zara): Leveraging Spain's tourism boom and its global retail footprint.
• ACS Group: Engaged in infrastructure projects tied to the RTRP, benefiting from public-private partnerships.

2. Real Estate and Construction: Betting on Housing Recovery

The housing market's rebound is underpinned by pent-up demand, low mortgage rates, and urbanization trends. With Spain's housing stock per capita lagging the EU average, construction firms and REITs are poised to benefit.

• Key Plays:
• Sareb: A real estate investment trust (REIT) specializing in distressed assets, now transitioning to affordable housing.
• Ferrovial: A construction giant with exposure to transportation infrastructure projects.
• Cementos Portland Valderrivas: Benefiting from rising demand for building materials in both residential and commercial sectors.

Risks to Monitor

While Spain's domestic story is strong, external threats could disrupt progress. The 10% U.S. tariff on EU goods—though only directly affecting 1% of Spain's GDP—may indirectly pressure sectors like machinery and agri-food exports. Additionally, geopolitical tensions, such as EU-U.S. trade disputes or energy supply risks, could dampen investor sentiment.

- Mitigation Strategy: Diversify portfolios with defensive stocks or bonds, and monitor geopolitical developments closely.

Conclusion: A Balanced Play for Investors

Spain's economy is a microcosm of Europe's post-pandemic recovery: robust domestically, but vulnerable to global volatility. For investors, the consumer discretionary and construction sectors offer tangible growth avenues, provided they stay agile in the face of geopolitical risks. While GDP forecasts have been revised downward, the underlying fundamentals—strong labor markets, fiscal consolidation, and RTRP investments—suggest Spain remains a key market for strategic allocations.

Investment Advice:
- Overweight consumer staples and retail stocks with domestic exposure.
- Target construction firms linked to infrastructure and green projects under the RTRP.
- Underweight export-heavy sectors until trade tensions ease.

Spain's resilience is not a mirage—it's a calculated bet on domestic demand. But as with all investments, vigilance is key.