The European industry continues to struggle to recover from repeated energy and geopolitical crises. Yet, in this uncertain backdrop, Spain stands out as an exception. Its manufacturing output has surpassed pre-war levels prior to the war in Ukraine, driven by a more balanced diversification of industry, competitive labor costs, and the rise of renewable energy. This is a promising trend, but it still faces several structural challenges, particularly with regard to productivity and the electricity grid infrastructure, according to economists at Coface.
“While the industrial heart of Europe remains weakened by successive crises, the Spanish industry is proving to be more dynamic. Its resilience rests on a diversified productive base, competitive costs, and strong energy potential. The real challenge now is to turn these advantages into sustainable productivity gains,” says Laurine Pividal, economist for Southern Europe at Coface.
A resilient industry as neighbors lag behind
Since 2022, Spain has solidified itself as one of Europe’s most dynamic economies, with annual growth two to six times higher than the European Union average. Industry follows the same trajectory: Spanish manufacturing output has already surpassed pre-war levels seen before the war in Ukraine, while Germany and Italy remain lagging.
This performance can be attributed, in part, to a more favorable industrial structure. While Germany and Italy remain highly exposed to sectors still hit hard by the energy crisis—such as automotive, machinery, and metallurgy—Spain benefits from greater diversification and a strong push in high value-added sectors (pharmaceuticals, electrical equipment, or electronics), as well as in certain energy-intensive industries (paper, plastics, or chemicals).
This momentum is not limited to the domestic market. Spain has maintained its share of EU exports since 2015, unlike Germany and France, whose shares have fallen.
Advantage in labor costs, but under pressure
One of the main strengths of Spanish industry remains its edge in labor costs. In 2025, hourly labor costs in the manufacturing sector were still significantly lower than in other large European economies (about 40% lower than in France and 43% lower than in Germany). This gap keeps Spain particularly competitive: its lower labor costs more than offset its productivity gap.
However, this advantage remains fragile. Between 2022 and 2025, hourly manufacturing costs rose by 15%, while real productivity grew by less than 3%. At the same time, job creation has been concentrated in low value-added sectors. The main risk is now clear: if wages continue to rise faster than productivity, one of Spain’s pillars of competitiveness could gradually weaken.
Energy: an underutilized competitive edge
In just a few years, the expansion of solar and wind energy has profoundly transformed Spain’s electricity system. By 2024, renewables accounted for 58% of Spain’s power mix. As a result, the country now relies far less on gas than most of its European neighbors, and gas influences electricity prices only 15% of the time (versus 89% in Italy in early 2026). This lower dependence reduces exposure to energy crises and helps Spain become the leading European market for power purchase agreements (PPAs), with about a quarter of capacity contracted.
However, this wholesale price advantage has not yet fully translated into manufacturers’ bills. Explanations include reduced subsidies, higher grid costs, and delays in investment in electrical infrastructure and storage. Spain spends only $0.30 on its grid for every dollar invested in renewables, compared with roughly $0.70 in most European countries, which has caused up to 11% of renewable generation to be curtailed in 2025 due to grid constraints.
Nevertheless, this potential could materialize over the next decade. The planned gradual phase-out by 2030 of Germany’s support schemes for energy-intensive industries, if confirmed, combined with Spain’s recent plan to invest €17.9 billion more in the electricity grid, could strengthen the country’s competitive edge. As the industry decarbonizes, access to affordable renewable electricity could become an increasingly important differentiating factor in Spain’s favor.
