Economy of Spain

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Economy of Spain
Currency	1 Euro = 100 eurocent
Fiscal year	Calendar year
Trade organizations	EU, WTO and OECD
Statistics
GDP	1.378 trillion (2008 est.)
GDP growth	1.3% (2008 est.)
GDP per capita	$34,600 (2008 est.)
GDP by sector	agriculture (3.6%), industry (28.9%), services (67.5%) (2008 est.)
Inflation (CPI)	1.4% (2008 est.)
Population below poverty line	19.8% (2005)
Gini index	32% (2005)
Labour force	23.1 million (2008 est.)
Labour force by occupation	services (64.6%), manufacturing, mining and construction (30.1%), agriculture (5.3%) (2005 est.)
Unemployment	17,93% (2009)
Main industries	Tourism, textiles and apparel (including footwear), food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools.
External
Exports	$292.8 billion F.O.B. (2008 est.)
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	$444.9 billion (2008 est.)
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	37.5% GDP (2008) or $516.75 billion
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.^[1] 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.^[2][3]Spain's economy had been credited with having avoided the virtual zero growth rate of some of its largest partners in the EU.^[4] 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.^[5]

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.^[2] 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.^[6] 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.^[7]

A European Commission forecast had predicted Spain would enter a recession by the end of 2008.^[8] According to Spain’s Finance Minister, “Spain faces its deepest recession in half a century”.^[9] Spain's government forecast the unemployment rate would rise to 16% in 2009. The ESADE business school predicts 20%.^[10]

Contents 1 History 1.1 2008–2009 financial crisis 1.2 Prices 1.3 Spanish banking system 1.4 Employment crisis 2 Economic ties 3 References and notes 4 External links 4.1 Statistical resources 4.2 Further reading

[edit] 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, Germany 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 liberalization and deregulation reforms aiming to reduce the State's role in the market place. In 1995 Spain started an impressive economic cycle marked by strong economic growth, with figures at or above 3%.^[11] In 2008, however, the bursting of a hyper-inflated housing bubble resulted in a severe recession that greatly outstripped succesive government predictions.^[12]

Growth in the decade prior to 2008 steadily closed the economic gap between Spain and its leading partners in the EU. Hence, 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.^[13] 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.^[14]

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.^[15]

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).^[16] 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.^[12]

In this regard, according to Eurostat's early estimates for 2007 GDP per capita for the EU-27. Spain happened to stay at 107% of the level, well above Italy who was still above the average (101%), and catching up with countries like France (111%).^[17]

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,^[18] a large underground economy,^[19] and an education system which OECD reports place among the poorest for developed countries, together with the United States and UK.^[20] 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).^[21][22]

[edit] 2008–2009 financial crisis

Spain continued the path of economic growth when the ruling party changed in 2004, keeping robust GDP growth during the first term of prime minister José Luis Rodríguez Zapatero, even though some fundamental problems in the Spanish economy were already self-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),^[23] 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.^[24]

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.^[25] 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,^[26] 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.^[27]

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^[28].

[edit] Prices

Due to the lack of own resources, Spain has to import all of its fossil fuels, which in an scenario of record prices added much pressure to the inflation rate. Thus, in June 2008 the inflation rate reached a 13 years high of 5.00%. Then, with the dramatic decrease of oil prices that happened in the second half of 2008 plus the confirmed burst of the property bubble, concerns quickly shifted to the risk of deflation instead, as Spain registered in January 2009 its lowest inflation rate in 40 years which was then followed in March 2009 by a negative inflation rate for the first time ever since this statistic was recorded.^[29][30]

[edit] 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 worldwide liquidity crisis, thanks to the country's conservative banking rules and practices. Banks are required to have high capital provisions and demand various proofs and securities from intending borrowers.^[31]

Spain's largest bank, Banco Santander, took part in the UK government's bail-out of part of the UK banking sector. ^[32]

[edit] 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 this particular month of October 2008, Spain suffered its worse unemployment rise ever recorded and,^[33] so far, the country is suffering Europe's biggest unemployment crisis^[34]. 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^[35]. 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.^[36] In this same month, Spain for the first time in her history had over 4,000,000 people unemployed,^[37] an especially shocking figure even for a country which had become used to grim unemployment data.^[36] Although rapidly slowing, large scale immigration continued throughout 2008 despite the severe unemployment crisis, thereby worsening an already grave situation.^[38] There are now indications that established immigrants have begun to leave, although many that have are still retaining a household in Spain due to the poor conditions that exist in their country of origin.^[39]

[edit] Economic ties

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.^[40]

Spanish companies lead fields like renewable energy (Iberdrola is the world's largest renewable energy operator^[41]) and infrastructure, with six of the ten biggest international construction firms specialising in transport being Spanish, like Ferrovial, ACS, OHL or FCC.^[42]

[edit] References and notes

[edit] External links

[edit] 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

[edit] 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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