Spain - Economy

Economy

Spain's capitalist mixed economy is the twelfth largest worldwide and the fifth largest in the European Union, as well as the Eurozone's fourth largest.

The centre-right government of former prime minister José María Aznar 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, a large underground economy, and an education system which OECD reports place among the poorest for developed countries, together with the United States and UK.

However, the Spanish property bubble that 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 reached 18.7% (37% for youths).

Before the current crisis, the Spanish economy was credited for having avoided the virtual zero growth rate of some of its largest partners in the EU. In fact, the country's economy 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. The Spanish economy has been until recently regarded as one of the most dynamic within the EU, attracting significant amounts of foreign investment.

The most recent economic growth benefited greatly from the global real estate boom, with construction representing 16% of GDP and 12% of employment in its final year.

According to calculations by the German newspaper Die Welt in 2007, Spain was on course to overtake Germany in per capita income by 2011. But the collapse of the housing boom in 2008 brought this to an end. According to the IMF, the PPP GDP per capita of Spain had, by 2010, slipped to USD 29,830; this compared to Germany at 36,081, France 33,910, Italy 29,480 and Portugal 23,262.

Research about quality of life by the Economist Intelligence Unit's quality of life survey placed Spain as the country among the top 10 best quality of life in the world for 2005, ahead of other economically and technologically advanced countries like France, Germany, the United Kingdom and South Korea.

Before the collapse of the real estate boom there had been a corresponding rise in the levels of personal debt as prospective home owners struggled to meet asking prices. The average level of household debt tripled in less than a decade. This placed 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.

The 2008/2009 credit crunch and world recession manifested itself in Spain through a massive downturn in the property sector. At first, Spain's banks and financial services avoided the more severe problems of their counterparts in the USA and UK, due mainly to a stringently enforced conservative financial regulatory regime. The Spanish financial authorities had not forgotten the country's own banking crisis of 1979 and an earlier real-estate-precipitated banking crisis of 1993. Indeed, Spain's largest bank, Banco Santander, participated in the UK government's bail-out of part of the UK banking sector.

A European Commission forecast predicted Spain would enter a recession by the end of 2008. According to Spain’s Finance Minister, “Spain faces its deepest recession in half a century”. Spain's government forecast the unemployment rate would rise to 16% in 2009. The ESADE business school predicted 20%. In 2012, it had already risen to 23.3%.