Spain's Economy

The economy of Spain is a highly developed social market economy. It is the world's 12th largest by nominal GDP and the sixth-largest in Europe (fifth excluding Russia). Spain is a member of the European Union and the eurozone, as well as the Organization for Economic Co-operation and Development and the World Trade Organization. In 2023, Spain was the 18th-largest exporter in the world. Meanwhile, in 2022, Spain was the 15th-largest importer in the world. Spain is listed 27th in the United Nations Human Development Index and 29th in GDP per capita by the International Monetary Fund. Some main areas of economic activity are the automotive industry, medical technology, chemicals, shipbuilding, tourism and the textile industry. Among OECD members, Spain has a highly efficient and strong social security system, which comprises roughly 23% of GDP.

During the Great Recession, Spain's economy was also in a recession. Compared to the EU and US averages, the Spanish economy entered recession later, but stayed there longer. The boom of the 2000s was reversed, leaving over a quarter of Spain's workforce unemployed by 2012. In aggregate, GDP contracted almost 9% during 2009–2013. In 2012, the government officially requested a credit from the European Stability Mechanism to restructure its banking sector in the face of the crisis. The ESM approved assistance and Spain drew €41 billion. The ESM programme for Spain ended with the full repayment of the credit drawn 18 months later.

The economic situation started improving by 2013. By then, Spain managed to reverse the record trade deficit which had built up during the boom years. It attained a trade surplus in 2013, after three decades of running a deficit. In 2015, GDP grew by 3.2%: a rate not seen since 2007. In 2014–2015, the economy recovered 85% of the GDP lost during the 2009–2013 recession. This success led some analysts to refer to Spain's recovery as "the showcase for structural reform efforts". Spain's unemployment fell substantially from 2013 to 2017. Real unemployment is much lower, as millions work in the grey market, people who count as unemployed yet perform jobs. Real Spanish GDP may be around 20% bigger, as it is assumed the underground economy is annually 190 billion euros (US$224 billion). Among high income European countries, only Italy and Greece are believed to have larger underground economies. Thus Spain may have higher purchasing power as well as a smaller gini coefficient (inequality measure), than shown in official numbers.

The 2020 pandemic hit the Spanish economy with more intensity than other countries, as foreign tourism accounts for 5% of GDP. In the first quarter of 2023, it had fully recovered from the downturn, its GDP reaching pre-pandemic levels. In 2023, Spain's economy grew 2.5%, bucking a downturn in the eurozone as a whole, and is expected to grow at 3.1% in 2024, and 2.5% in 2025.

According to Eurostat data, in 2024 Spain reached 92% of the European Union’s average GDP per capita, adjusted for purchasing power parity (PPP). This figure reflects a continued trend of economic convergence that began in the aftermath of the COVID-19 pandemic. In the course of this progression, Spain has surpassed countries such as the Czech Republic, Slovenia and South Korea, establishing itself as one of the EU economies that has most significantly narrowed the gap with the European core over the past five years.

History

During the first decades of the twentieth century, Spain experienced an accelerated growth of its industrial labor force and urban population; the economy became less agrarian as the process of urbanization spread after 1910. The largest sector was still agriculture but saw declines, along with fishery, relative to the share of active population engaged in the activity. The fastest growing sector at that time was services.

When Spain joined the EEC in 1986 its GDP per capita was about 72% of the average of its members.

At the second half of the 1990s, the conservative government of former prime minister Jose María Aznar had worked successfully to gain admission to the group of countries joining the euro in 1999. By the mid-1990s the economy had commenced the growth that had been disrupted by the global recession of the early 1990s. The strong economic growth helped the government to reduce the government debt as a percentage of GDP and Spain's high unemployment rate began to steadily decline. With the government budget in balance and inflation under control Spain was admitted into the eurozone in 1999. By 2007, Spain had achieved a GDP per capita of 105% of European Union's average due to its own economic development and the EU enlargements to 28 members, which placed it slightly ahead of Italy (103%). Three regions were included in the leading EU group exceeding 125% of the GDP per capita average level: the Basque Country, Madrid, and Navarre. According to calculations by the German newspaper ''Die Welt'' in 2008, Spain's economy had been on course to overtake countries like Germany in per capita income by 2011. in October 2006, Unemployment stood at 7.6% which compared favorably to many other European countries, and especially with the early 1990s when it stood at over 20%. In the past, Spain's economy had included high inflation and it has always had a large underground economy.

The turn to growth during the 1997-2007 period produced a real estate bubble fed by historically low interest rates, massive rates of foreign investment (during that period Spain had become a favorite of other European investment banks) and an immense surge in immigration. At its peak in 2007, construction had expanded to 15% of the total gross domestic product (GDP) of the country and 12% of total employment. During that time Spain capital inflows –including short term speculative investment– financed a large trade deficit.

The downside of the real estate boom was a corresponding rise in the levels of private debt, both of households and of businesses; 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.

Noticeable progress continued until early 2008, when the 2008 financial crisis burst Spain's property bubble.

A European Commission forecast had predicted Spain would enter the world's late 2000s recession by the end of 2008. At the time, Spain's Economy Minister was quoted saying, "Spain is facing 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%. By 2017, Spain's GDP per capita had fallen back to 95% of the European Union's average.

2008–2014 Spanish financial crisis

Like most economies, Spain's economy had been steadily growing, regardless of political changes e.g. when the ruling party changed in 2004. It maintained robust growth during the first term of prime minister José Luis Rodríguez Zapatero, even though problems were becoming evident. According to the ''Financial Times'', Spain's rapidly growing trade deficit had reached 10% of GDP by summer 2008, the "loss of competitiveness against its main trading partners" and as a part of the latter, inflation which had been traditionally higher than its European competitors. This was especially affected by house price increases of 150% from 1998 and growing private sector indebtedness (115%), chiefly related to the Spanish Real Estate boom and rocketing oil prices.

In April 2008, the Spanish government growth forecast was 2.3%, but this was revised down by the Ministry of Economy to 1.6%. Studies by independent forecasters estimated it had actually dropped to 0.8%, below the strong 3% plus growth rates during 1997–2007. During Q3 of 2008 the GDP contracted for the first time in 15 years. In February 2009, it was confirmed that Spain, along other European economies, had entered recession.

In July 2009, the IMF worsened the estimates for Spain's 2009 contraction, to -4% of GDP, close to the European average of -4.6%. It estimated a further 0.8% contraction for Spain, in 2010.
In 2011, the deficit reached a high of 8.5%. For 2016 the deficit objective of the government was around 4%, falling to 3% for 2017. The European Commission demanded 4% for 2016 and 2.5% for 2017.

Property boom and bust, 2003–2014

The adoption of the euro in 2002 had driven down long-term interest rates, prompting a surge in mortgage lending that jumped fourfold from 2000 to its 2010 apex. The growth in the property market, which had begun in 1997, accelerated and within a few years had developed into a property bubble. It was financed largely by "Cajas", which are regional savings banks under the oversight of regional governments, and was fed by the historically low interest rates and a massive growth of immigration. Fueling this trend, the economy was being credited for having avoided the almost zero of some of its largest partners in the EU, in the months previous to the global Great Recession.

Over the five years ending 2005, Spain's economy had created more than half of all new jobs in the EU. At the top of its property boom, Spain was building more houses than Germany, France and the UK combined. Home prices soared by 71% between 2003 and 2008, in tandem with the credit explosion.

The bubble imploded in 2008, causing the collapse of Spain's large property related and construction sectors, causing mass layoffs, and a collapsing domestic demand for goods and services. Unemployment shot up. At first, Spain's banks and financial services avoided the early crisis of their international counterparts. However, as the recession deepened and property prices slid, the growing bad debts of the smaller regional savings banks, forced the intervention of Spain's central bank and government through a stabilization and consolidation program, taking over or consolidating regional ''"cajas"'', and finally receiving a bank bailout from the European Central Bank in 2012, aimed specifically for the banking business and "''cajas"'' in particular. Following the 2008 peak, home prices plunged by 31%, before bottoming out in late 2014.

Euro debt crisis, 2010-2012

In the first weeks of 2010, renewed anxiety about excessive debt in some EU countries and, more generally, about the health of the euro spread from Ireland and Greece to Portugal, and to a lesser extent Spain. Many economists recommended a battery of policies to control the surging public debt caused by the recessionary collapse of tax revenues, combining drastic austerity measures with higher taxes. Some German policymakers went as far as to say that bailouts should include harsh penalties to EU aid recipients, such as Greece. The Spanish government budget was in surplus in the years immediately before the Great Recession, and its debt was not considered excessive.

At the beginning of 2010, Spain's public debt as a percentage of GDP was still less than those of Britain, France or Germany. However, commentators pointed out that Spain's recovery was fragile, that the public debt was growing quickly, troubled regional banks may need large bailouts, growth prospects were poor and therefore limiting revenue, and that the central government had limited control over the spending of the regional governments. Under the structure of shared governmental responsibilities that has evolved since 1975, much responsibility for spending had been given back to the regions. The central government found itself in the position of trying to gain support for unpopular spending cuts from the recalcitrant regional governments. In May 2010, the government announced further austerity measures, consolidating the ambitious plans announced in January.

As of September 2011, Spanish banks held a record high of €142 billion of Spanish national bonds. Till Q2 2012, Spanish banks were allowed to report real estate related assets in higher non-market price by regulators. Investors who bought into such banks must be aware. Spanish houses cannot be sold at land book value after being vacant over a period of years.

Employment crisis

After having completed large improvements over the second half of the 1990s and during the 2000s, Spain attained in 2007 its record low unemployment rate, at about 8%, with some regions on the brink of full employment. Then Spain suffered a severe setback from October 2008, when it saw its unemployment rate surge. Between October 2007 – October 2008 the surge exceeded that of past economic crises, including 1993. In particular, during October 2008, Spain suffered its worst unemployment rise ever recorded.
Even though the sheer size of Spain's underground economy masked the real situation, employment has been a long term weakness of the economy. By 2014 the structural unemployment rate was estimated at 18%.
By July 2009, Spain had shed 1.2 million jobs in one year. The oversized building and housing related industries were contributing greatly to the rising unemployment. From 2009 thousands of established immigrants began to leave, although some did maintain residency due to poor conditions in their country of origin. In all, by early 2013 Spain reached an unprecedented unemployment record at about 27%.

In 2012 a radical labor reform made for a more flexible labor market, facilitating layoffs with a view to enhancing business confidence.

= Youth

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During the early 1990s, Spain experienced economic crisis as a result of a Europe-wide economic episode that led to a rise in unemployment. Many young adults found themselves trapped in a cycle of temporary jobs, which resulted in the creation of a secondary class of workers through reduced wages, job stability and advancement opportunities. As a result, many Spaniards, predominantly unmarried young adults, emigrated to pursue job opportunities and raise their quality of life, which left only a small amount of young adults living below the poverty line. Spain experienced another economic crisis during the 2000s, which also prompted a rise in emigration to neighboring countries with more job stability and better economic standing.

Youth unemployment remains a concern, prompting suggestions of labor market programs and job-search assistance like matching youth skills with businesses. This would improve Spain's weakened youth labor market, and their school to work transition, as young people have found it difficult to find long-term employment. As of January 2025, the youth unemployment in Spain stands at 24.9%.

=Employment recovery

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The labor market reform started a trend of setting successive positive employment records. By Q2 of 2014, the economy had reversed its negative trend and started creating jobs for the first time since 2008. The second quarter reversal had been extraordinary; jobs created set an absolute positive record since such quarterly employment statistics began in 1964. Labor reform did seem to play an important role; one piece of evidence cited was that Spain had started creating jobs at lower rates of GDP growth than before: in previous cycles, employment rose when growth hit 2%, this time the gain came during a year when GDP had expanded by just 1.2%.

Greater than expected GDP growth paved the way for further decline in unemployment. Since 2014, Spain registered steady annual falls in the official jobless figure. During 2016, unemployment experienced the steepest fall on record. By the end of 2016, Spain had recovered 1.7m of the more than 3.5m jobs lost over the recession. By Q4 2016 Spanish unemployment had fallen to 19%, the lowest rate in seven years. In April 2017 the country recorded its biggest drop in jobless claimants for a single month to date. In Q2 of 2017, unemployment fell to 17%, below 4 million for the first time since 2008, with the country experiencing its steepest quarterly decline in unemployment on record. In 2018, at 14.6% the unemployment rate did not exceed the 15% threshold for the first time since 2008 when the crisis began.

As of 2017, trade unions, left, and center-left parties continued to criticize and wanted labor reform to be revoked, on grounds that it tilted the balance of power too far towards employers. Most new contracts were temporary. In 2019, Pedro Sánchez's socialist government increased the minimum wage by 22% in an attempt to boost hiring and encourage spending, and increased it further in the labor reform adopted at the end of 2021. Members of the opposition argued this increase, would negatively affect 1.2 million workers due to employers being unable to cover the raise, resulting in higher unemployment. Contrary to such opinion, the reforms approved by Sanchez's government resulted in a robust shift towards permanent employment contracts, and led to a 15-year low in unemployment rates at 11.60%.

Reduction of European Union funds

Capital contributions from the EU, which had contributed significantly to the economic empowerment of Spain since joining the EEC, have decreased considerably since 1990, due to the effects of the EU's enlargement. Agricultural funds from the Common Agricultural Policy of the European Union (CAP) are now spread across more countries. And, with 2004 and 2007's enlargement of the European Union, less developed countries joined, lowering average income, so that Spanish regions which had been relatively less developed, were now at the European average or even above it. Spain has gradually become a net contributor of funds for less developed countries of the Union, as opposed to receiving funds.

Economic recovery (2014–2020)

During the economic downturn, Spain significantly reduced imports, increased exports and attracted growing numbers of tourists; as a result, after three decades of running a trade deficit the country attained in 2013 a trade surplus which strengthened during 2014–15.

With a 3.2% increase in 2015, growth was the highest among larger EU economies. In two years (2014–2015) the economy had recovered 85% of the GDP lost during the 2009-2013 recession, which had some international analysts referring to Spain's recovery as "the showcase for structural reform efforts". The Spanish economy outperformed expectations and grew 3.2% in 2016, faster than the eurozone average. One of the main drivers of recovery was international trade, in turn sparked by dramatic gains in labor productivity. Exports shot up, from around 25% (2008) to 33% of GDP (2016) on the back of an internal devaluation (the country's wage bill halved in 2008–2016), a search for new markets, and a mild recovery of the European economy. In the second quarter of 2017 Spain had recovered all the GDP lost during the economic crisis, exceeding for the first time output in 2008.

By 2017, following several months of prices increasing, homeowners who had been renting during the economic slump had started to put their properties back on the market. In this regard, home sales are expected to return in 2017 to pre-crisis (2008) level. The Spanish real estate market was experiencing a new boom, this time in the rental sector. Out of 50 provinces and compared to May 2007, the National Statistics Institute recorded higher rent levels in 48 provinces, with the 10 most populated accumulating rent inflation between 5% and 15% since 2007. The phenomenon was most visible in big cities such as Barcelona or Madrid, which saw new record average prices, partially fueled by short-term rentals to tourists.

Data

The following table shows the main economic indicators in 1980–2023 (plus IMF estimates for ''2024–2027'' in italics). Inflation below 5% is in green.

Banking system

Spanish private commercial banks played a central role in Spain's economic development, benefiting from their role as the state's creditor in the 19th century, from their ability to monetize public debt, and from state-sanctioned oligopolistic arrangements that lasted from the beginning of the 20th century until the late 1980s, when European rules forced a liberalization of the sector. It has been argued that the favorable treatment received by the main Spanish commercial banks and their close relationship to the Bank of Spain (''Banco de España'') following the end of the Franco regime allowed for a public-private partnership to restructure the large commercial banks into two large banks (Santander and BBVA) with the purpose of preparing the private institutions for international competition and external expansion once the European banking market was integrated in 1992 Alongside this financial mercantilism benefiting the commercial banking sector, Spanish regulators also allowed for the vast expansion of not for profit savings banks sponsored by regional governments who became heavily exposed to the housing mortgage and real estate development sectors during the Spanish economic boom of 1999–2007.

Prior to 2010, the Spanish banking system had 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 were required to have high capital provisions and to demand various guarantees and securities from intending borrowers. This 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, Spain's large commercial banks have been able to capitalize on their strong position to buy up distressed banking assets elsewhere in Europe and in the United States.

Nevertheless, with the unprecedented crisis of the country's real estate sector, smaller local savings banks ("Cajas"), had been delaying the registering of bad loans, especially those backed by houses and land, to avoid declaring losses. In June 2009 the Spanish government set its banking bailout and reconstruction fund, the ''Fondo de reestructuración ordenada bancaria'' (FROB