Economy of Spain

The economy of Spain was one of the most dynamic within the European Union (EU) until 2008, getting significant amounts of foreign investment. In fact, the country's economy had created more than half of all new jobs in the European Union from 2000 to 2005.

More recently, the Spanish economy got huge profits from the "global property bubble". Construction represented an astonishing 16% of GDP and 12% of employment in 2007. According to the German newspaper Die Welt Spain was on track to overtake some countries like Germany or France in per capita income in 2011. However, this caused an increase in personal debt levels reaching a very high rate, it almost tripled in less than a decade. In 2005 the average ratio of debt debt had grown to 125%.

Background

In 1995 the country started an impressive economic cycle with a strong economic growth, more than 3%. In 2008, however, a severe recession is exceeding all the worst expectations.

The economic growth in the decade before 2008 gradually decreased differences between the economies of Spain and the powers of the EU. At the end of this economic cycle, income per capita of Spain was higher than the Italian one and was very close to that of France.

During this time the Spanish economy was considered one of the most dynamic within the EU with significant amounts of domestic and foreign investments, replacing the main role of the larger economies such as France or Germany.

Spain also made great progress integrating women into the labor market, from a position where the role of women in the labor market in the early 1970s was similar to that in other European countries in the 30s.

Due to its own economic development and the increase of the EU members, Spain exceeds the average EU GDP (105%), just placing ahead of Italy (103%). Three Spanish regions were included in the leading group of the EU (Madrid, Navarre and the Basque Country). According to growth rates after 2006, the remarkable progress of these figures was stopped in early 2008 when the Spanish economy was hit hard by the global financial crisis.

The center-right José María Aznar's government worked successfully to get admission to the group of countries that launched the Euro in 1999. Unemployment stood at 7.6% in October 2006. The weaknesses of the Spanish economy was the high inflation, a large underground economy and according to the OECD a poor educational system, together with the United States and the United Kingdom. However, the global property bubble ended in 2008, resulting in a weakening economy and rising unemployment. In late May 2009, unemployment reached 18.7%.

Economic crisis

Spain continued on the path of the economic growth when the ruling party changed in 2004, keeping a big GDP growth during the first José Luis Rodríguez Zapatero's term, despite the first problems of the Spanish economy were beginning to appear. Among them, the trade deficit, which reached an astonish 10% of the GDP in summer of 2008, the "loss of competitiveness against its main trading partners", the high inflation and a growing household debt (115%).

In 2007, the Spanish public debt regarding the total GDP was lower than the EU average and in fact there was a State budget surplus, but the financial situation deteriorated quickly since then. Since late 2008 the public debt regarding the total GDP ratio rose again to nearly the same percentage as in the United Kingdom, although still it was lower than the level of Greece in early 2010. Because of the seriousness of the economic crisis in Spain, the government annual deficit is expected to remain high.

Prices

Because of the lack of resources, Spain has to import all its fossil fuels. This means adding a lot of pressure to the inflation rate. In June 2008, the inflation rate reached a record high in 13 years (5.00%).

Banking system

The Spanish banking system has been credited as one of the most solid of all Western banking systems and can face up to the liquidity crisis worldwide. This has allowed large banks such as BBVA and Santander, be able to strengthened their positions buying banks assets in other parts of Europe and the United States.

However, the unprecedented severity of the housing crisis, small local savings banks have delayed the registration of failed loans, especially those supported by the housing and land, to avoid declaring losses.

Employment Crisis

In terms of employment, after completing substantial improvements in the second half of the 1990s and during the 2000s, Spain suffered a backward step in October 2008, when the unemployment rate increased reaching 1996 levels. The country is experiencing the biggest crisis in Europe in terms of unemployment so far. The unemployment rate in Spain reached 17.4% at the end of March. For the first time in its history more than 4,000,000 people are unemployed. In 2009, some immigrants began to leave the country, although many stayed in Spain due to poor conditions in their country of origin.

Exports

Since the early 1990 some Spanish companies are multinational firms, expanding its activities mainly in Latin America, where Spain is the second largest foreign investor after the United States.

Spanish companies are leaders in some sectors such as renewable energy (Iberdrola is the world's largest company of renewable energy) and infrastructure (Ferrovial, ACS, OHL or FCC)