Were you looking for the big picture of Spain’s Economy? Wellm this is your quick summary of the most relevant details on Spain’s financial history so I will bring it today.
No worries! It isn’t dull or too extense. It has some definitions, but I used straightforward words because I also needed to understand this.
In this article, you will learn seven vital questions to understand the Spanish economy and be able to talk to your number of friends about it without having to study it like them!
Don’t forget that economy is ever-evolving, so visit the links attached to this article for more detailed ideas.
1. What is the type of Economy in Spain?
If we picture the economy as a scale, there is capitalism or a free market on one end and communism or a planned economy on the other. Anything in between is a mixed economy that will lean towards one style more than the other. For example, the United States and the United Kingdom are nations with an almost pure capitalist system, contrary to China or Cuba, whose governments control every aspect of the economy.
Spain is part of the countries with mixed economies qualifying as mixed capitalists. What does this mean? It means that the Spanish market is partially laissez-faire, and the government intervenes in some regulations.
Let’s pause to remember that Spain is a constitutional monarchy, and the person in charge is the “president of the government” (like a prime minister). You can learn more about that here:
What does the Spanish Monarchy Do? Role and Influence in Spain Society
Going back to mixed capitalism, the Spanish government respects property rights and allows private businesses to be partially free to perform their activity. However, the government also interferes for the sake of the social good, plus it owns some means of production, such as the railway, the postal service, and TV production.
Some of the restrictions that the government in mixed capitalism established are minimum wage laws, tariffs, quotas, windfall taxes, license restrictions, prohibited products or contracts, direct public expropriation, anti-trust legislation, legal tender laws, subsidies, and eminent domain (Investopedia).
Main economic activities of Spain
Unlike countries like Venezuela, which is reliant on one natural resource, oil, to support the economy, Spain has a pretty varied economic activity. The Spanish economy moves on manufacturing, financial services, electricity, textiles and apparel, and tourism.
Tourism may be the first driver of the Spanish economy, contributing 11% of the annual GDP and receiving around 75 million people each year. Then comes manufacturing, where labor mainly goes to pharmaceuticals and automobiles, producing 25 billion euros and 2.8 million units, respectively. Additionally, although the Spanish soil is not the best for farming, it still represents Europe’s second-largets land dedicated to agriculture, from which almost 50% is exported. Spain also produces and uses its electricity, producing 276.8 TWh and exporting approximately 3% of it.
Spain is the fourth biggest producer of the clothing and textile industry behind Italy, Germany, and France. This might be obvious after seeing the Zara revolution around the world. The brand dominates and leads trends in the fast fashion industry with more than two thousand stores across the globe.
And let us not forget the financial services. Spain is in the top twenty of the biggest banks in Europe, with Santander in fourth place and BBVA in nineteenth place. If you want to read more about these successful Spanish companies, head here:
The 9 Most Successful Spanish Businesses To Consider
2. What is Spain’s GDP?
The Spanish nominal GDP is the fourteen most significant in the world, with 1,28 trillion dollars representing the total market values of the country’s goods and services over the year. Additionally, Spain occupies thirty-fourth of the largest GDP per capita, with approximately 26 thousand dollars. This metric indicates the market value of everything produced divided by its residents.
3. What is Spain’s CPI?
First things first, let us define what CPI means. CPI is the “Consumer Product Index” metric measuring consumers’ monthly payment increases. Spain’s CPI has globe through two significant ups and downs in the last five years: the Pandemic and the Ukraine war. From 2019 to 2020, the CPI remained under 100. However, since 2021 when the economy was readjusting from Covid, the prices have skyrocketed, reaching a CPI of 110 in 2022. One of the causes of this rapid increase is the war in Ukraine, which has made it more difficult for European countries to access essential resources such as gas.
A high CPI means that the purchasing power of Spanish citizens has decreased, and therefore can’t spend as much as they used to.
4. What is Spain’s inflation rate?
The Consumer Product Index is essential for calculating a country’s inflation rate. The latter shows the percentual increase of prices over a period of time. The formula for the inflation rate is the Final CPI divided by the first CPI times a hundred.
Again events around the world affect this number by increasing or decreasing. According to the Federal Reserve, a healthy inflation rate would be 2% yearly. However, the war y Ukraine and Covid affected it greatly, reflecting an immense price increase and decreased purchasing power.
So, what were Spain’s inflation rates in the past years? The numbers were pretty steady until the Pandemic hit. Taking 2018 as a reference, the highest IR of that year was 2.3%, which decreased to 1.5% in 2019. After that, Covid happened, and we all know that was crazy. During that period, Spain experienced an inflation of 1.1% (highest point) and dropped to -0.9%, known as deflation, the reduction of general level prices. No one was earning money, no one wanted to spend what they had left.
In 2021, things began to improve, going from -0.9% to 5.5%. Inflation was following a healthy recovery until the Ukraine war hit; in this case, prices skyrocketed, reaching the highest peak of 10.8% of inflation in Spain.
Here you got a graph of Spain’s inflation rate evolution.
5. What is Spain’s interest rate?
An interest rate is the cost of borrowing money that each country’s central bank determines. I want this concept to be super clear for you, so I will quote some experts.
“Central banks use the policy interest rate to perform contractive or expansive monetary policy. A rise in interest rates is commonly used to curb inflation, currency depreciation, excessive credit growth, or capital outflows. On the contrary, by cutting interest rates, a central bank might be seeking to boost economic activity by fostering credit expansion or currency depreciation to gain competitiveness”. - Focused Economy
Spain’s highest interest rate was 12,26% in 1995, and the lowest was 0,4% in 2020. On the latter year, banks wanted people to spend to keep the economy flowing, so they would lend money at such low stakes. But we all know Covid was a very, very exceptional situation. The interest rate has become more steady in the past two years, between 2% and 3% (CEIC Data).
6. What was the Spanish Economic Crisis?
The official dates of the modern Spanish economic crisis are from 2007 to 2014, but the mess began even before!
The mess began with the Civil War that left Spain in ruins, followed by thirty-seven years of dictatorship that isolated the country economically. Nevertheless, in Franco’s final years, the country experienced something called the “Spanish economic miracle,” a period of immense growth by technocrats. What does this mean? The first time Spain’s economy improved after the Civil War was between 1959 and 1975 when a new breed of politicians (set by Franco) created policies that pushed Spain’s development.
During those years, the government invested in state-owned companies that revitalized industries such as refining, petrochemicals, chemicals, and engineering. The automotive industry was the most relevant and productive of the time. Pushed by the mass market car company SEAT, the country went from having 72,000 private cars to over 1 million in less than twenty years. Spain joined the OECD, the International Monetary Fund, and the World Bank during that period. This “miracle” stopped with the oil crisis of the seventies.
Okay, that was a very summarized version of the events for you to have the big picture. So, after Franco’s team of specialists (the technocrats) did their part, the petrol crisis hit them, and something else happened!
Franco died in 1975, and democracy was reinstated. Spain left its isolation years behind and started opening up to the world with small steps. However, this did not mean immediate improvement. Spain depended on foreign oil, and the country needed to adjust to the changing economic environment. This, plus other significant factors, led to high levels of unemployment, and the economy plummeted again. In 1982, Felipe Gonzalez from the Socialist party took over and installed policies that helped the country heal. He was the one responsible for Spain joining NATO and the European Union.
By the late 1990s, economic growth was strong. From 2006, the Spanish real estate industry received a lot of cheap credit, so much so that the debt was higher than the overall economy debt. Just like in the United States, the housing bubble exploded, and the consequences lasted until 2014. After deep austerity measures and reforms, Spain exited the deep and prolonged recession in 2013, and its economy began growing again. However, unemployment and short-term contracts were and still are one of the country’s most significant issues.
7. Is Spain a developed country?
Now you have a pretty general but complete frame of the Spanish economy. Today the country has the fifth-largest economy in Europe and is one of the most significant contributors to the European Union.
Is that enough for a country to be developed? Some years ago, it might have been. However, today there are much more metrics than economic aspects that determine if a country is developed. These are human development, gender inequality index, better life index, and happiness index. These indexes consider different aspects of a country, such as education, longevity, and equality, to create a bigger picture of the country’s quality and conditions of life. For example, Spain is one of the European countries with the highest longevity levels and better life-work balance.
Spain ranks pretty well in most of the indexes, but there is room to improve. If yuo want to know more about each of them in Spain, check put the link below!
Is Spain Developed? 9 Criteria and where Spain Ranks in the World
That’s it! You just went through a very quick but complete Spanish Econ class that gives you all the necessary details to understand the country. Remember to check the other articles, especially one on Spain’s development, to understand the country’s conditions and lifestyle better. I will leave you a video in case you are more of a visual learner!