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Economy of Spain
Currency	1 Euro = 100 eurocent
Fiscal year	Calendar year
Trade organizations	EU, WTO and OECD
Statistics
GDP	€1.051 trillion ($1.443 trillion) (4th term 2009)[1]
GDP growth	−3,1% (2009)[2]
GDP per capita	€22,486 ($30,862) (2009)[2]
GDP by sector	agriculture (2.3%), energy (2.3%), industry (11.7%), construction (10.0%), services (66.6%) (Dec. 2009)[1]
Inflation (CPI)	1.1% (Jan. 2010)[2]
Population below poverty line	19.8% (2005)
Gini index	32% (2005)
Labour force	23.0 million (Dec. 2009)[2]
Labour force by occupation	services (70.7%), industry (14.1%), construction (9.9%), agriculture, farming and fishing (4.5%), energy (0.7%) (Sep. 2009)[1]
Unemployment	18.83% (Dec. 2009)[2]
Main industries	Tourism, textiles and apparel (including footwear), food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools.
External
Exports	€248.9 billion ($341.6 billion) F.O.B. (2009)[1]
Export goods	Machinery, motor vehicles, foodstuffs, pharmaceuticals and medicines, other consumer goods
Main export partners	France 18.8%, Germany 10.8%, Portugal 8.6%, Italy 8.5%, UK 7.6% U.S. 4.2% (2007)
Imports	€270.4 billion ($371.1 billion) (Oct. 2009)[1]
Import goods	Machinery and equipment, fuels, chemicals, semifinished goods, foodstuffs, consumer goods, measuring and medical control instruments
Main import partners	Germany 15.7%, France 12.7%, Italy 8.4%, China 5.8%, UK 4.8%, Netherlands 4.6% (2007)
Public finances
Public debt	€455.95 billion 43.1% GDP (Nov. 2009) or $653.10 billion[3]
Revenues	$443.3 billion (2008 est.)
Expenses	$535.6 billion (2008 est.)
Economic aid	$1.33 billion (donor) (1999)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

Until 2008 the economy of Spain had been regarded as one of the most dynamic within the EU, attracting significant amounts of foreign investment.^[4] During the last four decades the Spanish tourism industry has grown to become the second biggest in the world, worth approximately 40 billion Euros, about 5% of GDP, in 2006.^[5][6] Spain's economy had been credited with having avoided the virtual zero growth rate of some of its largest partners in the EU.^[7] In fact, the country's economy had created more than half of all the new jobs in the European Union over the five years ending 2005, a process that is rapidly being reversed.^[8]

More recently, the Spanish economy had benefited greatly from the global real estate boom, with construction representing an astonishing 16% of GDP and 12% of employment in its final year.^[5] According to calculations by the German newspaper Die Welt, Spain had been on course to overtake countries like Germany in per capita income by 2011.^[9] However, the downside of the now defunct real estate boom was a corresponding rise in the levels of personal debt; as prospective homeowners had struggled to meet asking prices, the average level of household debt tripled in less than a decade. This placed especially great pressure upon lower to middle income groups; by 2005 the median ratio of indebtedness to income had grown to 125%, due primarily to expensive boom time mortgages that now often exceed the value of the property.^[10]. There is also no unemployment benefit in Spain, as the tax is particularly low

A European Commission forecast had predicted Spain would enter a recession by the end of 2008.^[11] According to Spain’s Finance Minister, “Spain faces its deepest recession in half a century”.^[12] Spain's government forecast the unemployment rate would rise to 16% in 2009. The ESADE business school predicts 20%.^[13]

History

The Spanish economy was credited for having avoided the virtual zero growth rate of some of its largest partners in the EU (namely France, German and Italy) in the late 90's and at the beginning of the 21st century in a process which started with former Prime Minister Aznar's recommenced liberalization and deregulation reforms aimed at reducing the state's role in the economy. In 1995, the country began an impressive economic cycle marked by strong economic growth, with figures at or above 3%.^[14] In 2008, however, the bursting of the housing bubble resulted in a severe recession that greatly outstripped successive government predictions.^[15]

Map showing regional variation in European GDP (PPP) per capita in 2006. Figures from International Monetary Fund

Growth in the decade prior to 2008 steadily diminished the per capita economic gap between Spain and the largest economies in the EU. By the end of this economic cycle, Spain's per capita position had overtaken Italy's and was almost on a par with that of France.^[16]

During this time the Spanish economy was regarded as one of the most dynamic within the EU, even able to replace the leading role of much larger economies like the ones of France and Germany, thus subsequently attracting significant amounts of native and foreign investment.^[17] Also, during the period spanning from the mid 1980s through the mid 2000s, Spain was second only to France in being the most successful OECD country in terms of reduced income inequality over this period.^[18]

Spain also made great strides in integrating women into the workforce. From a position where the role of Spanish women in the labour market in the early 1970s was similar to that prevailing in the major European countries in the 1930s, by the 1990s Spain had achieved a modern European profile in terms of economic participation by women.^[19]

Due to its own economic development and the recent EU enlargements up to 27 members (2007), Spain as a whole exceeded (105%) the average of the EU GDP in 2006 placing it ahead of Italy (103% for 2006). As for the extremes within Spain, three regions in 2005 were included in the leading EU group exceeding 125% of the GDP average level (Madrid, Navarre and the Basque Autonomous Community) and one was at the 85% level (Extremadura).^[20] According to the growth rates post 2006, noticeable progress from these figures happened until early 2008, when the Spanish economy was heavily affected by the puncturing of its property bubble by the global financial crisis.^[15]

The centre-right government of former prime minister José María Aznar had worked successfully to gain admission to the group of countries launching the euro in 1999. Unemployment stood at 7.6% in October 2006, a rate that compared favorably to many other European countries, and especially with the early 1990s when it stood at over 20%. Perennial weak points of Spain's economy include high inflation,^[21] a large underground economy,^[22] and an education system which OECD reports place among the poorest for developed countries, together with the United States and UK.^[23] However, the property bubble that had begun building from 1997, fed by historically low interest rates and an immense surge in immigration, imploded in 2008, leading to a rapidly weakening economy and soaring unemployment. By the end of May 2009 unemployment had already reached 18.7% (37% for youths).^[24][25]

2008–2009 financial crisis

Spain continued on the path of economic growth when the ruling party changed in 2004, maintaining robust GDP growth during the first term of prime minister José Luis Rodríguez Zapatero, even though some fundamental problems in the Spanish economy were becoming clearly evident. Among these, according to the Financial Times, there was Spain's huge trade deficit (which reached a staggering 10% of the country's GDP by the summer of 2008),^[26] the "loss of competitiveness against its main trading partners" and, also, as a part of the latter, an inflation rate which had been traditionally higher than the one of its European partners, back then especially affected by house price increases of 150% from 1998 and a growing family indebtedness (115%) chiefly related to the Spanish Real Estate boom and rocketing oil prices.^[27]

The Spanish government official GDP growth forecast for 2008 in April was 2,3%. This figure was successively revised down by the Spanish Ministry of Economy to 1.6.^[28] This figure looked better than those of most other developed countries. In reality, this rate effectively represented stagnant GDP per person due to Spain's high population growth, itself the result of a then continuing strong level of immigration. Currently most independent forecasters estimate that the rate was actually around 0.8% instead,^[29] far below the strong 3% plus GDP annual growth rates during the 1997-2007 decade. Then, during the third quarter of 2008 the national GDP contracted for the first time in 15 years and, in February 2009, it was confirmed that Spain, along other European economies, had officially entered recession.^[30]

In July 2009, the IMF worsened the estimates for Spain's 2009 contraction, to minus 4% of GDP for the year (close to the European average of minus 4.6%), besides, it estimated a further 0.8% contraction of the Spanish economy for 2010, the worst prospect amid advanced economies^[31].

In 2007 the total Spanish public debt (government debt) relative to the total GDP was well below the European Union average, and in fact the government budget was running on a slight fiscal surplus, but the financial situation has since rapidly deteriorated. From late 2008 the public debt relative to GDP began to climb steeply, reaching almost the same percentage level as the UK's, although still well below Greece's level, at the beginning of 2010. Because of the severity of Spain's economic crisis, annual government deficits are expected to remain high and will continue to add heavily to the public debt over the next few years, as an expected slow recovery holds down tax receipts while welfare and other recession related expenses remain high.

Prices

Due to the lack of own resources, Spain has to import all of its fossil fuels. In a scenario of record prices this means adding much pressure to the inflation rate. As a matter of fact, in June 2008 the inflation rate reached a 13-year high at 5.00%. Then, with the dramatic decrease of oil prices that took place in the second half of 2008 plus the manifest bursting of the real estate bubble, concerns quickly shifted over to the risk of deflation, as Spain recorded in January 2009 its lowest inflation rate in 40 years, followed shortly afterwards, in March 2009 by a negative inflation rate for the first time since the gathering of these statistics started.^[32][33]

Spanish banking system

The Spanish banking system has been credited as one of the most solid and best equipped among all Western economies to cope with the ongoing worldwide liquidity crisis, thanks to the country's conservative banking rules and practices. Banks are required to have high capital provisions and to demand various guarantees and securities from intending borrowers. This has allowed the banks, particularly the geographically and industrially diversified large banks like BBVA and Santander, to weather the real estate deflation better than expected. Indeed, these banks have been able to capitalise on their strong position to buy up distressed banking assets elsewhere in Europe and in the United States.^[34]

However, given the unprecedented deepening of the housing crisis, smaller savings banks are known to have delayed the registering of failed credits, especially those backed by houses and land, to avoid declaring losses. This has occurred despite the fact that credits are backed by the borrower's present and future assets. The graveyard is no escape from prosecution.

Thus far, CCM (Caja Castilla la Mancha) is still the only local savings bank to be taken over by the Banco Central de España (equivalent of the US Federal Reserve). Price Waterhouse estimated an imbalance between assets and debts of €3,500 million, not counting the industrial corporation. One of the investment mistakes this bank had indulged in during the height of the property boom was funding the construction of an airport in Ciudad Real. It turned out that no airline wanted to operate from there, resulting in a financial fiasco (as well as wasting a lot of land and ruining vistas). There were still further errors leading to the present situation. The central bank intervened in the financial affairs of this caja because of generalised withdrawal of money by savers. The extent of the problems with the smaller banks remains unclear.^[35]

Employment crisis

As for the employment, after having completed substantial improvements over the second half of the 1990s and during the 2000s which put a few regions on the brink of full employment, Spain suffered a severe setback in October 2008 when it saw its unemployment rate surging to 1996 levels. During the period October 2007-October 2008 Spain had its unemployment rate climbing 37%, exceeding by far the unemployment surge of past economic crises like 1993. In particular, during the month of October 2008, Spain suffered its worst unemployment rise ever recorded and,^[36] so far, the country is suffering Europe's biggest unemployment crisis^[37]. By July 2009, it had shed 1.2 million jobs in one year and was to have the same number of jobless as France and Italy combined^[38]. Spain's unemployment rate hit 17.4% at the end of March, with the jobless total now having doubled over the past 12 months, when two million people lost their jobs.^[39] In this same month, Spain for the first time in her history had over 4,000,000 people unemployed,^[40] an especially shocking figure even for a country which had become used to grim unemployment data.^[39] Although rapidly slowing, large scale immigration continued throughout 2008 despite the severe unemployment crisis, thereby worsening an already grave situation.^[41] There are now indications that established immigrants have begun to leave, although many that have still keep their homes in Spain due to poor conditions in their country of origin.^[42]

The 2010 Euro Debt Crisis

In the first weeks of 2010, renewed anxiety about the excessive levels of debt in some EU countries and, more generally, about the health of the euro has spread from Ireland and Greece to Portugal, Spain and Italy.

Some European think-tanks such as the CEE Council have argued that the predicament some Mainland EU countries find themselves in today is the result of a decade of debt-fueled Keynesian economic policies pursued by local policy makers and complacent EU central banker^[43], and many economists have recommended the imposition of a battery of corrective policies to control public debt- such as drastic austerity measures and substantially higher taxes.

Some senior German policy makers went as far as to say that emergency bailouts should bring harsh penalties to EU aid recipients such as Greece, Spain or Ireland.^[44]

While Spain's public debt at the beginning of 2010 was still not especially high by European standards, commentators have become concerned that the central government has no control over the spending of the regional governments. Under the shared structure of government responsibilities that have evolved since 1975, much responsibility for spending had been given back to the regions, without giving the regions the responsibility of raising the required taxes. The central government now finds itself unable to gain support for unpopular spending cuts from the recalcitrant regional governments.^[45]

Economic ties

Spanish exports in 2006

Ever since the 1990s some Spanish companies have gained multinational status, often, but not only, expanding their activities in culturally close Latin America, where Spain is the second biggest foreign investor after the United States.^[46]

Spanish companies lead fields like renewable energy (Iberdrola is the world's largest renewable energy operator^[47]) and infrastructure, with six of the ten biggest international construction firms specialising in transport being Spanish, like Ferrovial, ACS, OHL or FCC.^[48]

Carbon dioxide emissions

Carbon dioxide emissions from the consumption of energy in Spain between 1971 and 2007.

In 2007, carbon dioxide emissions from the consumption of energy in Spain were 383.205 million metric tons in 2007.^[49][50] It makes Spain the fifth emissor in the European Union and the 18th all over the world. With regard to per capita carbon emission, figures for Spain are 9.474 metric tons (9th in the European Union and 49th in the world).^[51]

References and notes

External links

Statistical resources

• Banco de España (Spanish Central Bank); features the latest and in depth statistics
• Statistical Institute of Andalusia
• National Institute of Statistics
• Statistical Institute of Catalonia
• Statistical Institute of Galicia
• OECD's Spain country Web site and OECD Economic Survey of Spain

Further reading

• Article: Investing in Spain by Nicholas Vardy - September, 2006. A global investor's discussion of Spain's economic boom.
• The Pain in Spain: On May Day, Nearly 1 in 5 are Jobless by Andrés Cala, The Christian Science Monitor, May 1, 2009
• O'Neill, Michael F.; McGettigan, Gerard (2005), "Spanish biotechnology: anyone for PYMEs?", Drug Discovery Today, News and Comment (London: Elsevier) 10 (16): 1078–1081, 15 August 2005, doi:10.1016/S1359-6446(05)03549-X, ISSN 1359-6446 

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