Economy - overview: After experiencing a prolonged recession in the wake of the global financial crisis that began in 2008, in 2017 Spain marked the fourth full year of positive economic growth in ten years, largely due to increased private consumption. At the onset of the financial crisis, Spain's GDP contracted by 3.7% in 2009, ending a 16-year growth trend, and continued contracting through most of 2013. In that year, the government successfully shored up struggling banks - exposed to the collapse of Spain's depressed real estate and construction sectors - and in January 2014 completed an EU-funded restructuring and recapitalization program for its financial sector.
Until 2014, credit contraction in the private sector, fiscal austerity, and high unemployment weighed on domestic consumption and investment. The unemployment rate rose from a low of about 8% in 2007 to more than 26% in 2013, but labor reforms prompted a modest reduction to 17% in 2017. High unemployment has strained Spain's public finances, as spending on social benefits increased while tax revenues fell. Spain’s budget deficit peaked at 11.4% of GDP in 2010, but Spain gradually reduced the deficit to about 3.3% of GDP in 2017. Public debt has increased substantially – from 60.1% of GDP in 2010 to nearly 96.7% in 2017.
Exports were resilient throughout the economic downturn and helped to bring Spain's current account into surplus in 2013 for the first time since 1986, where it remained through 2016. Rising labor productivity and an internal devaluation resulting from moderating labor costs and lower inflation have helped to improve foreign investor interest in the economy and positive FDI flows have been restored.
Political gridlock after the national elections in December 2015 and June 2016 and ensuing government formation process constrained the caretaker government’s ability to implement needed labor, pension, health care, tax, and education reforms— in 2016. The European Commission criticized Spain’s 2016 budget for easing austerity measures and for its alleged overly optimistic growth and deficit projections. Spain’s borrowing costs are dramatically lower since their peak in mid-2012, and with the recent uptick in economic activity, inflation has reappeared, at 2% per year.
Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.
Source: CIA World Factbook - This page was last updated on January 20, 2018