Economy of Spain

Economy of Spain
Skylinemad.jpg
Rank 9th (nominal) / 13th (PPP)
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 0,1% (1T/2010)[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) 1.4% (Mar. 2010)[2]
Population
below poverty line		 19.8% (2005)
Gini index 32% (2005)
Labour force 23.0 million (Apr. 2010)[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 20.05% (Apr. 2010)[2]
Main industries metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools, Tourism[3][4], textiles and apparel (including footwear), food and beverages.
Ease of Doing Business Rank 62nd[5]
External
Exports €248.9 billion ($341.6 billion) F.O.B. (2009)[1]
Export goods Machinery, motor vehicles, chemicals, shipbuilding, foodstuffs, pharmaceuticals and medicines, other consumer goods
Main export partners France 18.3%, Germany 10.6%, Portugal 8.7%, Italy 8%, U.K. 6.7%, U.S. 4.2% (2008)
Imports €270.4 billion ($371.1 billion) (Oct. 2009)[1]
Import goods Fuels, chemicals, semifinished goods, Machinery and equipment, foodstuffs, consumer goods, measuring and medical control instruments
Main import partners Germany 14.5%, France 11.1%, Italy 7.4%, China 6.2%, U.K. 4.5%, Netherlands 4.4% (2008)
FDI stock $649.9 billion (31 December 2009 est.)
Gross external debt $2.41 trillion (30 June 2009)
Public finances
Public debt €455.95 billion 43.1% GDP (Nov. 2009) or $653.10 billion[6]
Revenues $420.4 billion (2009 est.)
Expenses $536.3 billion (2009 est.)
Economic aid $1.33 billion (donor) (1999)
Foreign reserves $20.25 billion (31 December 2008 est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars

The economy of Spain is the ninth-largest economy in the world, based on nominal GDP comparisons, and the fifth-largest in Europe [7]. It is regarded as the world's 15th most developed country. Until 2008 the economy of Spain had been regarded as one of the most dynamic within the EU, attracting significant amounts of foreign investment.[8] Spain's economy had been credited with having avoided the virtual zero growth rate of some of its largest partners in the EU.[9] 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.[10]

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. 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.[11] 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.[12]. A European Commission forecast had predicted Spain would enter a recession by the end of 2008.[13] According to Spain’s Finance Minister, “Spain faces its deepest recession in half a century”.[14] Spain's government forecast the unemployment rate would rise to 16% in 2009. The ESADE business school predicted 20%.[15] After a steep plunge in late 2008 and throughout 2009, in which the unemployment rate met ESADE's forecast, the economy stabilised in the first quarter of 2010.[16] 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).[17] 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.[18]

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,[19] a large underground economy,[20] and an education system which OECD reports place among the poorest for developed countries, together with the United States and UK.[21] 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).[22][23]

Contents

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 now becoming clearly evident. Among these, according to the Financial Times, was Spain's rapidly growing trade deficit, which had reached a staggering 10% of the country's GDP by the summer of 2008,[24] 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.[25]

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.[26] 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 high rate of immigration. Retrospective studies by most independent forecasters estimate that the rate had actually dropped to 0.8% instead,[27] 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.[28]

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[29]. The estimation of the IMF was proven to be somewhat too pessimistic, as Spain's GDP sank less than that of most advanced economies in 2009 and by the first quarter of 2010 had already emerged from the recession.

In 2008 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 in surplus, but the financial situation rapidly deteriorated with the onset of the recession.

Spanish banking system

The Spanish banking system has been credited as one of the most solid of all western banking systems in coping 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.[30]

Nevertheless, with the unprecedented deepening of the country's housing crisis, smaller local savings banks are known to have delayed the registering of bad loans, especially those backed by houses and land, to avoid declaring losses. This has occurred despite the fact that these credits are backed by the borrower's present and future assets.

CCM (Caja Castilla la Mancha), is still the only local savings bank to have suffered a run by depositors. The Banco Central de España (equivalent of the US Federal Reserve) forcibly took over CCM to prevent its financial collapse.[31] Price Waterhouse estimated an imbalance between CCM's 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 the funding of an airport at 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. In May 22, 2010, the Banco Central took over another "caja", CajaSur, as part of a national program to put the country's smaller banks on a firm financial basis.[32]

The 2010 Euro debt crisis

Main article: 2010 European sovereign 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[33]. CEE's claim is contradicted in Spain's case; where the budget prior to the crisis was in surplus, the public debt as a percentage of GDP was relatively low, and had, in fact, been substantially reduced over the previous five years.

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.[34]

Although rising rapidly with the onset of the crisis, Spain's public debt at the beginning of 2010, as a percentage of GDP, was still not high by European standards. Indeed, it was still less than the public debt levels of Britain, France and Germany. However, commentators became concerned that the central government has little control over the spending of the regional governments. Under the shared structure of governmental responsibilities that have evolved since 1975, much responsibility for spending had been given back to the regions without also handing over 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.[35]

On May 23, 2010, the government announced further austerity measures, consolidating the ambitious plans announced in January.[36]

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,[37] so far, the country is suffering Europe's biggest unemployment crisis[38]. 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[39]. Spain's unemployment rate hit 17.4% at the end of March, with the jobless total having doubled over the previous 12 months, when two million people lost their jobs; with the oversized building and housing related industries contributing greatly to the rising unemployment numbers.[40] In this same month, Spain for the first time in its history had over 4,000,000 people unemployed,[41] an especially shocking figure even for a country which had become used to grim unemployment data.[40] Although rapidly slowing, immigration continued throughout 2008 despite the escalating unemployment crisis, worsening the situation.[42] In 2009 some established immigrants began to leave, although many that did continued to maintain homes in Spain due to poor conditions in their country of origin.[43]

Some critics say the Spanish labor market is too rigid, preventing employers from removing unproductive employees and putting upward pressure on unemployment as employers are wary of taking risks on new hires.[44]

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.[45][46]

Energy

The Comisión Nacional de la Energía (National Energy Commission) is the regulatory body for energy systems, created by Law 34/1998, of 7 October of the Hydrocarbons Sector, and developed by Royal Decree 1339/1999, of 31 July, which approved its regulations. The National Energy Commission has been assigned to the Ministry of Industry, Tourism And Trade.[47]

Economic ties

Spanish exports in 2006

Since the 1990s some Spanish companies have gained multinational status, often expanding their activities in culturally close Latin America. Spain is the second biggest foreign investor there, after the United States. Others have expanded into Asia, especially China.[48]

Spanish companies lead fields like renewable energy (Iberdrola is the world's largest renewable energy operator[49]) and infrastructure, with six of the ten biggest international construction firms specialising in transport being Spanish, like Ferrovial, Acciona, ACS, OHL and FCC.[50]

References and notes

  1. ↑ 1.0 1.1 1.2 1.3 1.4 Main results, National Statistics Institute
  2. ↑ 2.0 2.1 2.2 2.3 2.4 National Statistics Institute
  3. ↑ 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. "Global Guru" analysis, The Global Guru, http://www.theglobalguru.com/article.php?id=60&offer=GURU001, retrieved 2008-08-13 
  4. ↑ "Economic report" (PDF). Bank of Spain. http://www.bde.es/informes/be/boleco/coye.pdf. Retrieved 2008-08-13. 
  5. ↑ "Doing Business in Spain 2010". World Bank. http://www.doingbusiness.org/ExploreEconomies/?economyid=173. Retrieved 2010-08-20. 
  6. ↑ Tesoro Público. Boletín mensual sobre los mercados de deuda del Estado
  7. ↑ http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nominal%29
  8. ↑ (PDF) Official report on Spanish recent Macroeconomics, including tables and graphics, La Moncloa, http://www.la-moncloa.es/NR/rdonlyres/2E85E75E-E2D9-4148-B1DF-950B06696A6C/74823/Chapter_2.PDF, retrieved 2008-08-13 
  9. ↑ OECD figures, OECD, http://stats.oecd.org/WBOS/ViewHTML.aspx?QueryName=198&QueryType=View&Lang=en, retrieved 2008-08-13 
  10. ↑ Tremlett, Giles (26 July 2006), Economic statistics, London: Guardian, http://www.guardian.co.uk/world/2006/jul/26/spain.gilestremlett, retrieved 2008-08-13 
  11. ↑ (PDF) No camp grows on both Right and Left, European Foundation Intelligence Digest, http://www.europeanfoundation.org/docs/id210.pdf, retrieved 2008-08-09 
  12. ↑ (PDF) Bank of Spain Economic Bulletin 07/2005, Bank of Spain, http://www.bde.es/informes/be/boleco/2005/be0507e.pdf, retrieved 2008-08-13 
  13. ↑ Recession to hit Germany, UK and Spain, Financial Times, 2008-09-10, http://www.ft.com/cms/s/0/cf5d0f08-7f49-11dd-a3da-000077b07658.html?nclick_check=1, retrieved 2008-09-11 
  14. ↑ Spain faces deepest recession in 50 years, Spanish News, January 18, 2009
  15. ↑ Mounting joblessness in Spain | And worse to come, The Economist, January 22, 2009
  16. ↑ 'Spain hobbles out of recession', Associated Press
  17. ↑ Login required — Eurostat 2004 GDP figures
  18. ↑ "Spain (Economy section)", The World Factbook (CIA), 23 April 2009, archived from the original on 19 May 2009, http://www.webcitation.org/5gsZhjpvP, retrieved 1 May 2009, "GDP growth in 2008 was 1.3%, well below the 3% or higher growth the country enjoyed from 1997 through 2007." 
  19. ↑ "Spain's Economy: Closing the Gap". OECD Observer. May 2005. http://www.oecdobserver.org/news/fullstory.php/aid/1592/Spain%92s_economy_.html. Retrieved 2008-08-15. 
  20. ↑ "Going Underground: America's Shadow Economy". FrontPage magazine. January 2005. http://www.frontpagemag.com/Articles/Read.aspx?GUID=3E2579A7-6002-4048-97BB-46679C5D8A88. Retrieved 2008-08-15. 
  21. ↑ (PDF) OECD report for 2006, OECD, http://www.oecd.org/dataoecd/51/21/37392840.pdf, retrieved 2008-08-09 
  22. ↑ Euro zone unemployment reaches 15 million. CBCNews.ca. July 2, 2009.
  23. ↑ The unemployment timebomb is quietly ticking. Telegraph. July 4, 2009.
  24. ↑ Abellán, L. (30 August 2008), "El tirón de las importaciones eleva el déficit exterior a más del 10% del PIB" (in Spanish), El País, Economía (Madrid), http://www.elpais.com/articulo/economia/tiron/importaciones/eleva/deficit/exterior/PIB/elpepueco/20080830elpepieco_3/Tes, retrieved 2 May 2009 
  25. ↑ Crawford, Leslie (8 June 2006), Boomtime Spain waits for the bubble to burst, , Financial Times, Europe (Madrid), ISSN 0307-1766, http://www.ft.com/cms/s/0/32cd35d0-f68b-11da-b09f-0000779e2340.html?nclick_check=1 
  26. ↑ Europa Press (2008), La economía española retrocede un 0,2% por primera vez en 15 años, (in Spanish), El País, Economía (Madrid), 31 October 2008, http://www.elpais.com/articulo/economia/economia/espanola/retrocede/primera/vez/anos/elpepueco/20081031elpepueco_8/Tes, retrieved 2 May 2009 
  27. ↑ Economist Intelligence Unit (28 April 2009), "Spain Economic Data", Country Briefings (The Economist), archived from the original on 19 May 2009, http://www.webcitation.org/5gsZqpB7k, retrieved 2 May 2009 
  28. ↑ Day, Paul; Reuters (18 February 2009), "UPDATE 1 — Spain facing long haul as recession confirmed", Forbes (Madrid), http://www.forbes.com/feeds/afx/2009/02/18/afx6064245.html, retrieved 2 May 2009 
  29. ↑ [1]
  30. ↑ Spain's largest bank, Banco Santander, took part in the UK government's bail-out of part of the UK banking sector. Charles Smith, article: 'Spain', in Wankel, C. (ed.) Encyclopedia of Business in Today's World, California, USA, 2009.
  31. ↑ "Spanish steps", The Economist, International Banking, 15 May 2008, http://www.economist.com/specialreports/displaystory.cfm?story_id=11325484, retrieved 2 May 2009 
  32. ↑ http://www.bloomberg.com/apps/news?pid=20601087&sid=a7EtmcVuIwwQ&pos=6
  33. ↑ (French) see M. Nicolas Firzli, 'Bank Regulation and Financial Orthodoxy: the Lessons from the Glass-Steagall Act', http://www.canadianeuropean.com/yahoo_site_admin/assets/docs/Bank_Regulation_and_Financial_Orthodoxy__RAF__Jan_2010.784613.pdf, retrieved 2010-01-04 
  34. ↑ (English) 'Merkel Economy Adviser Says Greece Bailout Should Bring Penalty', http://www.businessweek.com/news/2010-02-15/merkel-economy-adviser-says-greece-bailout-should-bring-penalty.html, retrieved 2010-02-15 
  35. ↑ Zapatero’s Bid to Avoid Greek Fate Hobbled by Regions, Bloomberg, March 18 2010
  36. ↑ http://news.yahoo.com/s/afp/20100523/ts_afp/financeeconomyspainpoliticsstrike_20100523202827
  37. ↑ Agencias (4 November 2008), "La recesión económica provoca en octubre la mayor subida del paro de la historia" (in Spanish), El País, Internacional (Madrid), http://www.elpais.com/articulo/internacional/recesion/economica/provoca/octubre/mayor/subida/paro/historia/elpepuint/20081104elpepuint_8/Tes, retrieved 2 May 2009 
  38. ↑ "Builders' nightmare", The Economist, Europe (Madrid), 4 December 2008, http://www.economist.com/world/europe/displaystory.cfm?story_id=12725415, retrieved 2 May 2009 
  39. ↑ [2]
  40. ↑ 40.0 40.1 "Spain's jobless rate soars to 17%", BBC America, Business (BBC News), 24 April 2009, http://news.bbc.co.uk/1/hi/business/8016364.stm, retrieved 2 May 2009 
  41. ↑ Agencias (24 April 2009), "El paro supera los cuatro millones de personas por primera vez en la historia" (in Spanish), El País, Economía (Madrid), http://www.elpais.com/articulo/economia/paro/supera/millones/personas/primera/vez/historia/elpepueco/20090424elpepueco_2/Tes, retrieved 14 May 2009 
  42. ↑ Captain Chaos (8 March 2009), "Spain sees first drop in immigration in a decade", Costa Tropical News, Spanish News (on-line), archived from the original on 19 May 2009, http://www.webcitation.org/5gsa9ADYQ, retrieved 14 May 2009  (this periodical appears to be more blog-like than journalistic)
  43. ↑ González, Sara (1 May 2009), "300.000 inmigrantes han vuelto a su país por culpa del paro" (in Spanish), El Periódico de Catalunya, Sociedad (Barcelona: Grupo Zeta), http://www.elperiodico.com/default.asp?idpublicacio_PK=46&idioma=CAS&idnoticia_PK=608508&idseccio_PK=1021, retrieved 14 May 2009 
  44. ↑ "What Went Wrong In Spain But Why It Isn't Greece". 2010-05-23. http://www.npr.org/templates/story/story.php?storyId=127069441. Retrieved 2010-07-06. 
  45. ↑ Reuters (13 February 2009), "Spain's Vegara does not expect deflation", Forbes (Madrid), http://www.forbes.com/feeds/afx/2009/02/13/afx6049113.html, retrieved 2 May 2009 
  46. ↑ Agencias (15 April 2009), "El IPC de marzo confirma la primera caída de los precios pero frena la deflación" (in Spanish), El País, Economía (Madrid), http://www.elpais.com/articulo/economia/IPC/marzo/confirma/primera/caida/precios/frena/deflacion/elpepueco/20090415elpepueco_1/Tes, retrieved 2 May 2009 
  47. ↑ http://www.eng.cne.es/cne/contenido.jsp?id_nodo=3&&&keyword=&auditoria=F
  48. ↑ "A good bet?", The Economist, Business (Madrid), 30 April 2009, http://www.economist.com/business/displaystory.cfm?story_id=13579705, retrieved 14 May 2009 
  49. ↑ [3]
  50. ↑ "Big in America?", The Economist, Business (Madrid), 8 April 2009, http://www.economist.com/business/displaystory.cfm?story_id=13447445, retrieved 14 May 2009 

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