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Economy of Spain PDF Print E-mail
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Monday, 30 May 2011 09:53

Spain Solar PowerSpain has a capitalist mixed economy that is the twelfth largest worldwide and the fifth largest in the European Union, as well as the Eurozone's fourth largest. Spain is also the third largest world investor.

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 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).

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 an astonishing 16% of GDP and 12% of employment in its final year.

According to calculations by the German newspaper Die Welt, Spain was on course to overtake countries like Germany in per capita income by 2011. However, the GDP per capita of Spain was still lower than the European Union average at US$29,875 in 2010, making it the second lowest in the Western Europe after Portugal. The downside of the now defunct real estate boom is also 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 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.

In 2008/2009 the credit crunch and world recession manifested itself in Spain through a massive downturn in the property sector. Fortunately, 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%.

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. Spain is also Europe's main producer of wind energy. In 2010 its wind turbines generated 42,976 GWh, which accounted for 16.4% of all the energy produced in Spain.

Last Updated on Monday, 30 May 2011 10:08