Reduction in EU Funds
European Union capital contributions, which have contributed significantly to Spain's economic empowerment since its accession to the European Economic Community, have declined significantly since 1990 due to economic standardization relative to other countries and the effects of EU enlargement. On the one hand, agricultural funds from the EU's Common Agricultural Policy (CAP) are now spread across more countries.
On the other hand, with the EU enlargement of 2004 and 2007, less developed countries joined the EU, reducing their average per capita income (or GDP per capita), so that Spanish regions previously considered relatively less developed were now at or above the European average. Spain gradually became a net contributor to EU funding for the least developed countries, rather than receiving funds.
Economic Recovery (2014-)
With a 3.2% increase in 2015, Spain's GDP growth was the highest among the largest EU economies that year. In just two years (2014-2015), the Spanish economy recovered 85% of the GDP lost during the 2009-2013 recession, leading some international analysts to refer to Spain's current recovery as a "facade of structural reform efforts."
By the second quarter of 2016, the Spanish economy had accumulated 12 consecutive quarters of growth, consistently outperforming the rest of the Eurozone. This growth has continued, with the Spanish economy beating expectations and growing by 3.2 percent in 2016, nearly double the Eurozone average.
Later, in the second quarter of 2017, Spain recovered the GDP lost during the economic crisis, surpassing the level of output reached in 2008 for the first time. The Spanish economy is expected to remain the best-performing major economy in the Eurozone in 2017 as well.
International trade is one of the main drivers of the economic recovery, which has been fueled by massive gains in labor productivity. During the economic crisis, Spain significantly reduced imports, increased exports, and continued to attract increasing numbers of tourists; as a result, after three decades of running a trade deficit, the country achieved a trade surplus in 2013, which strengthened during 2014 and 2015. Exports rose from around 25% (2008) to 33% of GDP (2016) on the back of an internal devaluation (the country's wage bill halved between 2008 and 2016), the search for new markets, and the recent light recovery of the European economy.
The Banking System
Spanish private commercial banks played a key role in Spain's economic development, benefiting from their role as creditors to the state in the 19th century, their ability to monetize public debt, and the monopolistic arrangements imposed by the state that persisted from the beginning of the 20th century until the late 1980s, when European regulations imposed liberalization of the sector. It has been argued that the favorable treatment received by the major Spanish commercial banks and their close relationship with the Bank of Spain (Banco de España) after the end of the Franco regime allowed a public-private partnership to restructure the large commercial banks into two large banks (Santander and BBVA), with the aim of preparing the private institutions for international competition and external expansion once the European banking market was consolidated in 1992. Alongside this financial trade that benefited the commercial banking sector, Spanish regulators also permitted a massive expansion of non-profit savings banks sponsored by regional governments, which became heavily exposed to the mortgage and real estate development sectors during the Spanish economic boom of 1999–2007.
Prior to 2010, the Spanish banking system was considered one of the most resilient in the West in the face of the ongoing global liquidity crisis, thanks to the country's conservative banking rules and practices. Banks were required to maintain high capital buffers and require diversified collateral and securities from prospective borrowers. This allowed banks, particularly large, geographically and industrially diversified banks such as BBVA and Santander, to weather the real estate downturn better than expected. In fact, Spain's major commercial banks were able to leverage their strong position to purchase distressed banking assets elsewhere in Europe and the United States.
However, with the country's unprecedented housing crisis, smaller domestic savings banks (cajas) were delaying the registration of bad loans, especially those backed by homes and land, to avoid declaring losses. In June 2009, the Spanish government established the Banking Rescue and Reconstruction Fund, Fondo de reestructuración ordenada bancaria (FROB), known in English as the "Organized Bank Restructuring Fund." In this case, state intervention in local savings banks due to the risk of default was less than feared. On May 22, 2010, Banco de España acquired CajaSur, as part of a national program to put the country's smaller banks on a sound financial footing. In December 2011, Spain's central bank, Banco de España (the equivalent of the US Federal Reserve), seized Caja Mediterraneo, also known as CAM (Regional Bank), to prevent its financial collapse. The international accounting firm, PriceWaterhouseCooper, estimated CAM's asset-to-liability imbalance at €3,500 million, not counting the industrial enterprise. The turbulent situation culminated in the partial nationalization of Bankia in May 2012. By then, it had become clear that the savings banks' mounting real estate losses were undermining confidence in the country's government bonds, exacerbating the sovereign debt crisis.
In early June 2012, Spain requested €41 billion in European financing to "recapitalize the Spanish banks it needed." It wasn't a bailout, as it limited itself to parts of the banking sector (a full bailout for an economy ten or twelve times the size of Spain's). In exchange for the aid, there were no taxes or macroeconomic conditions attached. Interest on the loan would be paid to the banks themselves. The plan would be overseen by the International Monetary Fund (IMF), which would not contribute any funds. According to a statement by European finance ministers, the Eurogroup would closely monitor "the correction of economic imbalances."
As of 2017, the cost of restructuring Spain's failed savings banks was estimated at €60.7 billion, of which approximately €41.8 billion would be covered by the state through the FROB, and the remainder by the banking sector. The total cost will not be fully understood until the recent privatization of those lenders still under state control (Bankia and BMN). In this regard, Spain is considering a merger of the two banks by early 2017, followed by the privatization of the combined bank to recoup an estimated €400 million in bailout costs.
During this transition period, most regional savings banks, such as CAM, Catalunya Banc, Banco de Valencia, Novagalicia Banco, Unnim Banc, and Cajasur, have since merged and/or been absorbed by larger, more global Spanish banks, which have imposed better management practices and eliminated political interference.
Prices
Due to its scarcity of resources, Spain must import all its fossil fuels. Furthermore, until the 2008 crisis, Spain's recent performance demonstrated an inflationary trend and an inflationary gap compared to other European Monetary Union countries, which impacted the country's overall productivity. Furthermore, when Spain joined the Eurozone, it lost its recourse to competitive currency devaluation, exposing it to a permanent and cumulative loss of competitiveness due to inflation. In the scenario of record oil prices by the mid-2000s, this meant significant pressure on the inflation rate. In June 2008, inflation reached a 13-year high of 5.00%.
Subsequently, with the sharp decline in oil prices in the second half of 2008 and the apparent bursting of the real estate bubble, concerns quickly shifted to the threat of deflation. In January 2009, Spain recorded its lowest inflation rate in 40 years, followed shortly thereafter by negative inflation for the first time since these statistics began to be compiled in March 2009. After that, aside from minor temporary oil shocks, the Spanish economy generally fluctuated between negative and near-zero inflation rates during the period from 2009 to early 2016. Analysts believe this was not synonymous with deflation, given that GDP had been growing since 2014, domestic consumption had also rebounded, and core inflation remained fairly positive.
Economic Strength
Since the 1990s, some Spanish companies have gained multinational status, often expanding their operations into culturally close Latin America. Spain is the second-largest foreign investor there, after the United States. Spanish companies have also expanded into Asia, particularly China and India. This early global expansion is a competitive advantage over their European competitors and neighbors. This may be primarily due to the growing interest in the Spanish language and culture in Asia and Africa, but also to a corporate culture that has learned to take risks in unstable markets.
Spanish companies have invested in areas such as renewable energy trading (Iberdrola is the world's largest renewable energy operator), technology companies such as Telefónica, Abengoa, Mondragon Corporation, Movistar, Gamesa, Hisdesat, and Indra, train manufacturers such as CAF and Talgo, global companies such as textile company Inditex, oil companies such as Repsol, and infrastructure, with six of the ten largest international construction companies specializing in transportation being Spanish, such as Ferrovial, Acciona, ACS, OHL, and FCC.
Spain has a strong banking system, including two major global banks, Banco Santander and BBVA.
Infrastructure
In the 2012-2013 edition of the Global Competitiveness Report, Spain ranked 10th in the world for first-class infrastructure. It is the fifth country in the European Union with the best infrastructure, surpassing countries such as Japan and the United States. In particular, the country is a leader in high-speed rail, having developed the second-longest network in the world (only behind China) and spearheading high-speed projects with Spanish technology worldwide.
Spanish infrastructure concessions lead 262 transport infrastructure projects worldwide, representing 36% of the total, according to the latest rankings compiled by the Public Works Financing publication. The top three Spanish companies in the world are ACS, Global Vía, and Abertis, according to a ranking of companies based on the number of concessions for roads, railways, airports, and ports under construction or in operation in October 2012. In terms of investment, the world's largest infrastructure concessionaire is Ferrovial-Cintra, with a value of €72 billion, closely followed by ACS, with €70.2 billion. Also among the top ten in the world are Spain's Sacyr (€21.5 billion), FCC and Global Vía (€19.4 billion), and OHL (€17.87 billion).
During 2013, Spanish civil engineering companies signed contracts worldwide totaling €40 billion, a new record for the national industry.
The Port of Valencia in Spain is the busiest airport in the Mediterranean, the fifth busiest in Europe, and the 30th busiest in the world. There are four other Spanish ports in the world's top 100 seaports ranking; as a result, Spain is tied with Japan for third place among the countries topping this ranking.
Indeed, as the impact of cheaper fuel prices faded and the economy recovered, moderate inflation returned to the 1-2% range in 2017.
Exports Grow Steadily
During the boom years, Spain ran a trade deficit that eventually reached a record high of 10% of GDP (2007), and external debt rose to 170% of GDP, one of the highest rates among Western economies. Subsequently, during the economic recession, Spain significantly reduced imports due to shrinking domestic consumption, while—despite the global slowdown—exports increased and continued to attract increasing numbers of tourists. Spanish exports grew by 4.2% in 2013, the highest rate in the European Union. As a result, after three decades of running a trade deficit, Spain achieved a trade surplus in 2013. Export growth was driven by capital goods and the automotive sector, and the surplus was expected to reach 2.5% of GDP in 2014. Exports in 2014 reached 34% of GDP, up from 24% in 2009. The trade surplus achieved in 2013 was consolidated in 2014 and 2015.
Despite a slight decline in exports from EU member states during the same period, Spanish exports continued to grow, and in the first half of 2016, the country surpassed its own record for goods exports to date, with €128,041 million; of this total, nearly 67% was exported to other EU countries. During this same period, among the 70 WTO members (whose economies collectively account for 90% of global GDP), Spain was the country with the most export growth.
In 2016, despite the global slowdown in trade, goods exports reached historic highs, representing 33% of GDP (by comparison, exports represent 12% of GDP in the United States, 18% in Japan, 22% in China, or 45% in Germany).
Overall, by 2017, foreign sales had increased every year since 2010, with some degree of unplanned import substitution—an unusual achievement for Spain during its expansion phase—indicating structural competitiveness gains. According to the latest 2017 data, approximately 65% of the country's exports go to other EU members.
Sectors of the Economy
The benchmark Spanish stock market index is the IBEX 35, which since 2016 has been led by banks (including Banco Santander and BBVA), clothing (Inditex), telecommunications (Telefónica), and energy (Iberdrola).
Foreign Trade
Traditionally, until 2008, most of Spain's exports and imports were with European Union countries: France, Germany, Italy, the United Kingdom, and Portugal.
In recent years, foreign trade has shifted beyond the European Union. Spain's main customers are Latin America, Asia (Japan, China, and India), Africa (Morocco, Algeria, and Egypt), and the United States. Its main trading partners in Asia are Japan, China, South Korea, and Taiwan. In Africa, oil-producing countries (Nigeria, Algeria, and Libya) are important partners, as is Morocco. Latin American countries are also very important trading partners, such as Argentina, Mexico, and Cuba (tourism), Colombia, Brazil, and Chile (food products), and Mexico, Venezuela, and Argentina (oil). [15]
After the crisis that began in 2008 and the collapse of the domestic market, Spain (since 2010) has turned extensively abroad, resulting in increased export volumes. Its traditional destinations have diversified and grown significantly in sales of medium and high-technology products, including highly competitive markets such as the United States and Asia.
Tourism
Over the past four decades, Spain's foreign tourism industry has grown to become the second largest in the world. A 2015 survey by the World Economic Forum declared the country's tourism industry the most competitive in the world. A 2017 survey reiterated this finding.
By 2015, the country remained the third most visited country in the world. With 75.3 million visitors, the country broke its own tourism record for the seventh consecutive year in 2016.
The turnover increased from approximately €40 billion in 2006 to approximately €77 billion in 2016. In 2015, the combined value of foreign and domestic tourism accounted for nearly 5% of the country's GDP and provided employment for approximately two million people.
The World Tourism Organization is headquartered in Madrid, Spain.
Automotive Industry
The automotive industry is one of the country's largest employers. In 2015, Spain was the eighth-largest automobile producer in the world and the second-largest in Europe after Germany.
By 2016, the automotive industry accounted for 8.7 percent of Spain's GDP and employed approximately 9 percent of the manufacturing industry. By 2008, the automotive industry was the second-largest exporting industry, while in 2015, approximately 80% of total production was exported.
German companies invested €4.8 billion in Spain in 2015, making the country the second-largest destination for German foreign direct investment (FDI), behind only the United States. The lion's share of this investment—€4 billion—was allocated to the country's automotive industry.
Energy
In 2008, Spain's electricity consumption per capita was 6,523 kWh. Electricity use in Spain accounted for 88% of the EU15 average (7,409 kWh/capita) and 73% of the OECD average (8,991 kWh/capita).
Spain is one of the world's leading renewable energy producers, both as a producer of renewable energy itself and as an exporter of this technology. In 2013, it became the first country in the world to have wind power as a primary energy source.
Agribusiness
Agribusiness has been another sector that has grown strongly over the past few years. Turnover in 2015 was just over €40 billion, representing 3% of GDP and more than 15% of total Spanish exports.
The boom occurred during the period 2004-2014, when Spain's agribusiness exports grew by 95%, led by pork, wine, and olive oil. By 2012, Spain was the world's largest producer of olive oil, accounting for 50% of total worldwide production. By 2013, the country had become the world's largest producer of wine; in 2014 and 2015, Spain was the world's largest wine exporter. However, poor marketing and low margins remain a problem, as evidenced by the fact that the main importers of Spanish olive oil and wine (Italy and France, respectively) purchase bulk Spanish products that are packaged and sold under Italian or French appellations, often at a significant markup.
Spain is the EU's largest producer and exporter of citrus fruits (oranges, lemons, and small citrus fruits), peaches, and apricots. It is also the EU's largest producer and exporter of strawberries.
Remnants of absolutism persist in agriculture. The king, the church, and the nobility remain the country's main landowners and thus benefit from European regional development aid (€1.85 million in 2003 for the Duchess of Alba).
