According to data issued on Friday by the National Statistics Institute, Spain’s economy dropped by 11% in 2020. (INE). This is the most significant drop since the Spanish Civil War in the late 1930s.
The limitations implemented last year to combat the spread of the coronavirus, particularly the 94 days of rigorous house confinement that virtually brought the economy to a halt between March and June, contributed to this dreadful figure. Economic output dropped 17.8% in the second quarter, and although modest improvement in the second part of the year, it was not enough to compensate for the losses.
Is Spain doomed in 2021?
Brussels upped the euro zone’s growth prediction for 2021 to 5%, two decimal points more than the summer forecast, but lowered anticipated output for 2022 from 4.5 percent to 4.3 percent. These data, on the other hand, show a strong rebound that could have been even greater if it hadn’t been for the supply chain crisis or an increase in inflation. Gentiloni stated during the presentation that the forecasts were produced in a “high uncertainty” environment because “recovery remains extremely dependent on the progress of the epidemic, both within and outside the EU.” The coronavirus situation has gotten worse in recent weeks in countries including Bulgaria, Germany, Austria, and the Netherlands, where stricter restrictions have been enforced.
The European Commission’s autumn projections lower Spain’s expected growth even farther than the International Monetary Fund (IMF), which slashed the country’s output to 5.7 percent in 2021 and 6.4 percent in 2022 a few weeks ago. At the end of October, Spain’s National Statistics Institute (INE) again reported poor growth data. All of this speaks to a macroeconomic picture in which it is evident that reaching the estimates on which the 2022 budget was based will be practically impossible for Spain.
Risk of lagging behind
The problem is that this will not be sufficient to prevent Spain from falling behind its EU counterparts. The issue is exacerbated by inflation, which, according to the autumn prediction, is expected to peak at 3.7 percent in the fourth quarter of this year and “continue posting high prints in the first half of 2022.” This will undoubtedly increase pressure on the European Central Bank (ECB) to withdraw stimulus packages and raise interest rates, which would hit nations with substantial public debt, such as Spain.
According to Brussels’ autumn projection, Spain’s debt will remain well above 100% of GDP in the next years. In 2021, the country’s deficit is predicted to rise to 8.1 percent, with debt rising to 120.6 percent of GDP, up from 120 percent in 2020. In 2022 and 2023, this percentage will begin to decline, to 118.2 percent and 116.9 percent, respectively. This is over 30 points higher than the EU average and 20 points higher than the euro zone average.
The estimate also shows Spain lagging behind in the labor market, an area where it has repeatedly underperformed in both crisis and recovery. Although the situation has improved in recent months the number of employed people has surpassed 20 million for the first time since 2008 it is still worse than it was a few years ago and will remain so in the coming years. In 2022, unemployment in the EU is expected to fall to 6.7 percent, the same level as before the pandemic. In contrast, it is expected to be 14.3% in Spain.
What is Spain’s current economic situation?
Global GDP is expected to grow at a rate of roughly 6.0 percent in 2021, 4.4 percent in 2022, and 3.8 percent in 2023. Spain’s growth forecast for 2021 has remained mostly unchanged at 5.1 percent. In 3Q21, slower-than-expected GDP growth was likely offset by stronger-than-expected growth in 4Q21.
What is the state of Spain’s economy in 2021?
According to an initial estimate released by the National Statistics Institute (INE) on Jan. 28, Spain’s GDP grew by 5.0 percent in 2021, a stunning rebound from a year earlier but below the government’s aim.
Is Spain experiencing economic difficulties?
In recent decades, much of the discussion concerning the Spanish economy has centered on issues such as persistent unemployment. Oscar Calvo-Gonzalez, citing a new book, argues that putting these failures aside and focusing on the country’s economic triumphs can yield some surprise results.
“What is Spain’s primary export?” says the narrator. While the two waited for President George W. Bush to attend the meeting, one of President George W. Bush’s closest advisors asked Spain’s Prime Minister Jos Mara Aznar a question designed as small conversation. Aznar retorted in his usual brusque manner, “Automobiles.” The American continued, assuming he had been misunderstood “No, I’m interested in the number one commodity that Spain exports.” Aznar was adamant about it “Automobiles.” “No, no, what I want to know is which Spanish product sells the most successfully abroad,” the American tried again, puzzled, and Aznar merely replied, “Yes, cars, cars.”
Spain is not only a major automotive exporter, but it is also one of only a few countries that has effectively shifted from middle- to high-income status in recent decades. Only a dozen of the more than a hundred middle-income economies in 1960 had progressed to high-income status by the end of the twentieth century. The expression “middle income trap” was coined by economists Indermit Gill and Homi Kharas after they discovered that transitions to high-income status were relatively rare.
It was a method to draw attention to not just this stylized reality, but also to the lack of an acceptable framework to assist policymakers in their efforts to go from middle-income to high-income status. A large body of literature has resulted, with most of it debating whether or not this is a ‘trap.’ Regardless, the number of nations that have made the transition to high-income status is still in the minority. And development practitioners’ attention tends to be drawn to an even smaller number of triumphs, such as South Korea. Some of Spain’s economic shortcomings are so well-known, including the country’s persistently high unemployment rate, that onlookers rarely equate the country with economic success.
Worse yet, Spain’s ascension to high-income status is frequently misinterpreted. Many people believe that Spain’s economic rise in recent decades was unavoidable. Above all, Spain’s European neighbors, according to popular belief, were wealthy and eager to assist. While the country may have hit rock bottom following the Civil War in the 1930s, the conventional wisdom holds that it was certain to recover. I’ll go back to Europe’s involvement later, but first, let me give you a quick overview of the puzzle.
For a century and a half, Spain’s per capita GDP had been drifting from the leading economies. The hopeless politics, recurring cycles of violence, corrupt activities, or the authorities’ incompetence were decried by both external and internal commentators. However, during the next thirty years, Spain would catch up to the United States in terms of per capita GDP, gaining roughly 30 percentage points. The United States, meantime, was experiencing a golden era of expansion. True, the external environment was favorable at the time, but the country had previously failed to take advantage of similar opportunities.
The fact that the sources of growth shifted, with a major increase in the contribution of productivity growth, is even more damaging for the assumption that Spain’s catching up is entirely the result of a bounce back. In addition, the frequency with which the economy shrank rather than grew was significantly reduced. Both of these variables point to a qualitatively different growth foundation in the decades following 1950. And the triumph was felt on a social level as well. In fact, Spain’s catch-up with the leading countries on many human development metrics was more thorough than in terms of output. There was also no improvement in social indicators. Although Spain was a military force in the early modern period, its literacy rate lagged behind Britain by two centuries well into the nineteenth century.
Spain’s economic ascension to high-income status has been generally underestimated and misunderstood. Taking a new look at Spain’s economic development has a big dividend.
Because much of the existing research on Spain’s economic development has focused on chronicling the flaws in economic policies or institutions that have hindered a more thorough catch-up, this story is seldom recognized. And, in retrospect, there was no shortage of suboptimal policies, like high tariff protection, numerous regulations, insufficient public revenue collection, little support for innovation, and wasteful public spending, to name a few. However, if we focus on the glass being half empty, we risk overlooking how the glass came to be half-filled despite all of the flaws.
As a result of this shift in perspective, new questions and insights about Spain’s economic direction emerge. There are several lessons that are well-known. The takeoff would have been unlikely and unsustainable without first curbing political violence and maintaining political stability, both of which were by-products of the Cold War. Spain benefited from good macroeconomic policies, or more specifically, disastrous macroeconomic policies that were corrected. It also benefited significantly from expanded openness, particularly to foreign direct investment, which was one of numerous paths to improved market discipline.
Other insights, on the other hand, are not what one might expect. In Spain, the initial set of economic reforms, which are generally considered as last-resort measures in times of crisis, can be explained better as a result of political stability rather than economic instability. Later changes, which were frequently chastised for their lack of ambition, can be seen of as ‘policy tinkering’ that, on balance, increased contestability. In a variety of exciting ways.
To return to the tale that started this article, automobiles are a good example of this. The domestic automobile industry in the 1950s consisted of a state-owned firm and a Renault subsidiary that was required to have a local partner who happened to be the dictator’s brother. Car imports were subject to hefty levies and, predictably, a lot of corruption. It hasn’t been the best of starts. Nonetheless, the car industry that would emerge in Spain did so not in spite of, but because of, protection and regulation.
Local content regulations were enacted and enforced, and local suppliers were pushed to compete. Because of the highly protected domestic market, foreign corporations established plants and brought technology. However, competitiveness was paired with protection in a unique way. For example, a new Ford plant was permitted on the condition that at least two-thirds of its output be exported. This provided the necessary incentives for a competitive operation as well as one that established domestic ties. A competitive marketplace of automotive part suppliers arose in a relatively short period of time.
What about Europe, for example? Access to European markets was critical for openness to produce the outcomes it did, but the road to success was paved by a number of institutional improvements that occurred far before EU membership. Above all, the concept of Europeanizing Spain aided in the formation of a crucial political and social consensus.
Spain’s economic ascension to high-income status has been generally underestimated and misunderstood. Taking a new look at Spain’s economic development has a big dividend. While each country’s journey is unique, this updated view of the country’s trajectory serves as a good case study of how progress occurs in the absence of ideal institutions and in the face of unfavorable starting conditions.
What is the cause of Spain’s economic crisis?
The Spanish financial crisis of 20082014, often known as the Great Recession in Spain or the Great Spanish Depression, began in 2008, at the height of the global financial crisis of 200708. When Spain was unable to bail out its financial industry and had to request for a 100 billion bailout package from the European Stability Mechanism in 2012, it became a late participant in the European sovereign debt crisis (ESM).
The housing bubble and its accompanying unsustainable high GDP growth rate were the primary causes of Spain’s catastrophe.
Despite considerable increases in expenditure, the Spanish government’s revenue remained in surplus until 2007, thanks to soaring tax collections from the burgeoning property investment and construction sectors. The Spanish government aided this crucial development by loosening financial sector supervision, allowing banks to breach International Accounting Standards Board standards. Spain’s banks were able to conceal losses and earnings fluctuation, deceive regulators, analysts, and investors, and so finance the country’s real estate bubble. The crisis had disastrous consequences for Spain, including a severe economic downturn, a significant increase in unemployment, and substantial company bankruptcies.
What is Spain’s main source of income?
Agriculture accounts for about 3.1 percent of GDP in Spain and employs about 4% of the workforce (World Bank, latest data available). Almost one million agricultural and livestock businesses cover 30 million hectares of land in the country. Spain is the world’s largest olive oil producer and the world’s third-largest wine producer. In addition, the country is one of the world’s largest producers of oranges and strawberries. Wheat, sugar beet, barley, tomatoes, olives, citrus fruits, grapes, and cork are the principal crops. Livestock, particularly pigs and cattle, is also essential.
The industrial sector employs one-fifth of the working population and accounts for 20.4 percent of GDP. Manufacturing is the most important industry, accounting for over 11% of total GDP (World Bank). Textiles, industrial food processing, iron and steel, naval machines, and engineering dominate the industrial sector. New industries with high development potential include electronic component outsourcing, information technology, and telecommunications. The renewable energy sector is also rapidly expanding.
The tertiary sector accounts for 67.8% of GDP and employs 76% of the working population. Because Spain is the world’s second-most popular tourist destination, the tourism sector is critical to the country’s economy (albeit its contribution to GDP has fallen from a pre-COVID level of 12.4 percent in 2019, to only 5.5 percent in 2020 – INE) (83.7 million tourists in 2019, before the pandemic started). The banking sector is also significant, with twelve banking groups comprising 51 private banks, two savings banks, and sixty cooperative banks (Spanish Banking Association).
Is Spain’s economy doing well?
In pre-pandemic conditions, the Spanish economy has consistently outperformed that of its European competitors during the last five years. With a GDP of $1.2 billion, Spain is the EU’s fourth largest economy (after the United Kingdom) and the world’s fourteenth largest economy.
Is it a decent place to reside in Spain?
Spain is ranked 16th out of 59 nations in the Expat Insider 2021 study, placing it in the top 20. With a ranking of eighth in the Quality of Life Index, it appears to be the ideal location for expats looking for better pastures. Nearly six out of seven survey respondents in Spain (85%) are satisfied with local leisure alternatives (vs. 72%), with 46 percent saying they are extremely satisfied (vs. 30 percent globally). Almost two-thirds of expats (59%) give the local climate and weather the highest possible grade, compared to only 27% globally. And 80% of those polled are content with their social and recreational activities (vs. 67 percent globally). With these statistics, it’s no wonder that Spain is ranked first in the Leisure Options section globally. “I like the way most Spaniards spend their time socializing over coffee, wine, or beer. “I also enjoy the weather,” adds an Argentine expat.
What does Spain manufacture in large quantities?
Spain has long been known for its vast quantities of wheat, barley, vegetables, tomatoes, olives, sugar beets, citrus fruit, grapes, and cork. Spain produces the most olive oil in the world and the most lemons, oranges, and strawberries in Europe. Rioja (see Rioja, La), in the upper Ebro valley, and Mlaga and Jerez de la Frontera, in Andalusia, are the most well-known wine areas. Cattle, pigs, and poultry are all raised on the farm. In many regions, agriculture is hampered by a lack of automation, insufficient irrigation, and soil fatigue and erosion.
Textiles and apparel, foods and beverages, metals and metal products, chemicals, ships, automobiles, machine tools, clay and refractory goods, footwear, medicines, and medical equipment are all manufactured by the major industries. The Madrid region, Valladolid, Catalonia (which has large textile, automotive parts, and electronics manufacturers), Valencia, and Asturias and the Basque Country (where the rich mineral resources of the Cantabrian Mts. (iron, coal, and zinc) have been exploited, though coal and iron mining has declined) are the main industrial centers. Ro Tinto mines copper extensively, as well as lead, uranium, silver, tin, and mercury, among other minerals. Near Burgos, petroleum is discovered. Fishing, particularly for sardines, tuna, cod, and anchovies, is a substantial source of income, particularly along the Atlantic coast, and fish canning is a significant industry. Spain’s main source of revenue is tourism.
Unlike the rest of Western Europe, most Spanish railroads use broad-gauge tracks, however some smaller systems employ narrow-gauge rails. A high-speed standard-gauge railway linking Madrid and Seville opened in 1992.
In recent decades, Spain has made significant economic development, yet it still lags behind the rest of Western Europe. Despite significant growth in industry during the 1950s, the country still has a big trade deficit. Spain’s main trading partners are France, Germany, Italy, and the United Kingdom. Machinery, automobiles, fruit, wine, and other food goods, as well as pharmaceuticals, are among the top exports. Machinery and equipment, fuels, chemicals, manufactured items, foodstuffs, and medical devices are all major imports.
Why is unemployment so high in Spain?
Spain has a high structural unemployment rate. Since the 1980s economic and financial crises, unemployment has never fallen below 8%. After Portugal, Italy, and Greece, Spain has the fourth highest unemployment rate in the OECD. One of the main causes is an economy reliant primarily on tourism and the construction industry, as well as a lack of industry. Basque Country is the most industrialized region (industry accounts for 2025 percent of GDP), with an unemployment rate 2.5 times lower than Andalusia and the Canary Islands (where industry accounts for just 510 percent of GDP). In times of boom and in times of crisis, the unemployment rate in Spain has remained about double that of industrialized countries for the past thirty years. Unemployment declined from 3.6 million to two million at the onset of the 1990s crisis, but remained stable throughout the stable period until the current crisis.