Spain's Industrial Renaissance: Navigating Tariff Storms with Sector Divergence in Focus

The Spanish economy is undergoing a bifurcated recovery, with its service sector thriving while manufacturing grapples with global headwinds. Investors seeking asymmetric opportunities must parse this divergence—and the government’s aggressive policy response—to identify sectors poised to outperform.

Service Sector Dominance: The Engine of Growth
Spain’s post-pandemic rebound has been powered by its service sector, which contributed over 70% of GDP growth in 2023–2024. Tourism’s resurgence was a key driver, with international arrivals surpassing pre-pandemic levels to hit 85 million in 2023. Accommodation and food services, critical to Spain’s tourism ecosystem, expanded at their fastest pace since 2001.

The rise of digital nomads has added a modern twist to this recovery. Tax incentives (e.g., a 15% income tax for remote workers earning under €28,000) and affordable coastal cities like Malaga and Valencia have attracted tech professionals from higher-cost European hubs. This influx has bolstered demand for IT services, healthcare, and professional services, driving employment growth to pre-pandemic levels by early 2024.

Manufacturing’s Struggles: Tariffs and Structural Challenges
While services shine, manufacturing faces a perfect storm. U.S. tariffs on steel, aluminum, and automobiles—combined with energy costs 4–6 times higher than in the U.S.—have hit mid-tech sectors like machinery and automotive hardest.

The automotive sector, once a pillar of Spanish manufacturing, contracted sharply in 2024 due to supply chain bottlenecks and shifting consumer preferences toward electric vehicles (EVs). However, the government’s MOVES III Plan—which extended €400 million to EV infrastructure—offers a lifeline.

The is stark. Exports to the U.S. face a 1.6% GDP drag by 2027, but sectors like pharmaceuticals and chemicals, less exposed to tariffs, are outperforming. For instance, Spain’s pharmaceuticals sector grew steadily in 2024, buoyed by favorable U.S. trade terms and rising demand for generics.

Policy Response: A €14.1B Firewall Against Tariffs
Spain’s Trade Response and Relaunch Plan, launched in April 2025, is a masterclass in proactive economic defense. Key components include:
- €5B in ICO guarantees for export firms to secure financing.
- €200M industrial investment fund for plant modernization.
- Expanded export credit (CESCE) coverage to €2B for tariff-hit sectors.

The plan also targets long-term structural reforms: redirecting €5B in EU Recovery Funds to energy efficiency and AI research, while a State Public Health Agency aims to streamline drug approvals. These measures position Spain to pivot from tariff vulnerability to global competitiveness.

Investment Implications: Where to Play
1. Tourism Infrastructure: Companies like FCC Construcción (FCOM.MC) are beneficiaries of hotel and resort development.
2. Pharmaceuticals: Grünenthal (GRUN.ETR) and Zeltia (ZEL.MC) leverage Spain’s generics advantage and EU-U.S. trade ties.
3. Renewables and Energy Efficiency: Iberdrola (IBER.MC) and Solarpack (SOLAR.MC) will profit from tariff-driven demand for domestic energy solutions.

Risks and Caution
- Tariff Escalation: U.S. trade measures could deepen if negotiations stall.
- Regional Disparities: High unemployment in Andalusia vs. Catalonia may strain labor mobility.
- Energy Costs: Gas prices remain a drag on mid-tech sectors.

Conclusion: A Strategic Entry Point
Spain’s divergence between thriving services and struggling manufacturing creates a clear investment roadmap. Focus on sectors insulated from tariffs (pharma, tourism) and companies benefiting from government stimulus. The €14.1B plan isn’t just damage control—it’s a blueprint for reshaping Spain into a 21st-century economic powerhouse. Now is the time to position for the next phase of its recovery.

Act now, before the market catches up to Spain’s hidden strengths.