Economics
Posted on 7 Jun 2010
Last modified on 7 Jun 2010
Spain’s economy, which is mixed capitalist, is the 12th biggest economy in the world. In terms of per capita income, Spain is almost at par with the strong economies of Germany and France. Between 1994 and 2008, the Spanish economy grew steadily. However, Spain was considerably affected by the global financial crisis of 2007. The crisis exacerbated the nation’s GDP, and the economy entered recession during the third quarter of 2008. In fact, Spain’s GDP growth during 2009 dropped to a mere 1.2%, which was well below the minimum 2% growth enjoyed by the nation for a decade before the crisis.
Economic Structure
Spain’s economic structure is principally dominated by its service sector, which accounts for about 70% of its GDP. Spain’s tourism industry is the one of the largest in the world, next only to France and the US. The industry contributes nearly 11% to the nation’s GDP, and is responsible for employment of over 2 million individuals in the Spanish economy.
After the service sector, Spain’s industry sectors have been the second largest contributor to the economy, employing about a quarter of the nation’s total labor force of 22.97 million. The industry sector, which comprises of textiles, chemicals, shipbuilding, automobiles, metals and machine tools, is also responsible for a majority of the exports. Despite the fact that Spain is on the fast-track to modernization, the growth of the industry sector has been slow. Spain’s industrial production growth rate in 2009 was a dismal -15.8%.
The agricultural sector has been lagging substantially. This is primarily because of the unfavorable terrain and climate of the country, which makes more than half of the land uncultivable. In addition, the Spanish government’s conscious efforts to shift to a modernized economy, has diluted the importance of the agricultural sector, which employs a meager 4.2% of Spain’s total labor force. Despite this, Spain continues to be Europe’s biggest cultivator of oranges, strawberries and lemon and the world’s largest producer of olive oil.
Monetary Policy
The Central Bank of Spain follows a monetary policy that is independent of the national government, since the early 1990s. In fact, such a monetary policy is also pursued by several other western European states. However, since Spain is a member of the Economic and Monetary Union (EMU), the exchange rates of the nation are determined by the European Central Bank (ECB).
Industry Sectors
Spain has traditionally been an agrarian economy. In fact, Spain is still the world’s biggest producer of olive oil and third biggest producer of wine. Additionally, the nation is Europe’s biggest producer of lemons, strawberries and oranges. Despite these favorable statistics, agriculture only contributes about 3.4% of the nation’s GDP. Spain’s economy, as a result of steady modernization, has become heavily reliant on its industry and service sectors. Spain’s industry sectors contribute about 27% of the nation’s GDP, while the service sector accounts for 70% of Spain’s total production. The Spanish industry sectors are principally concentrated in the regions of Madrid, Valladolid, Catalonia, Valencia and Asturias.
Industry Sectors: Major Contributors
Industry in Spain has developed in diverse sectors, including textile, food-processing, machinery, and iron and steel. However, the key contributors to Spain’s economy are:
Automotive Industry
In 2009, Spain’s automotive industry contributed about 3.5% of the nation’s GDP, employing 9% of the total labor force. Spain is among the top ten car manufacturing countries in the world. However, the industry’s production saw a significant downward spiral in 2008 and 2009, particularly as a result of unfavorable government policies. As a result, the ownership of several Spanish car brands has been passed to foreign companies. Currently, the major domestic player in Spain’s automotive industry is SEAT, a subsidiary of the Volkswagen Group.
Tourism Industry
Spain has the second largest tourism industry in the world, which is also the nation’s main source of income, contributing nearly 11% to Spain’s GDP and employing about 2 million of the total labor force. Additionally, Spain’s tourism industry is instrumental in stimulating Spanish exports. According to Eurostat, Spain dominated Europe’s tourism industry between 2000 and 2006, earning approximately 25% of the total revenues. Spain’s tourism industry, however, began to plateau in 2008 as a result of several factors, including the global economic meltdown and access to cheaper destinations in Europe.
Emerging Players
Fertilizers and chemicals are the most prominent industry sectors in Spain, representing a compound annual growth rate (CAGR) of 9.1% for 2004-2008. The industry generated total revenues of $4.3 billion in 2008. In addition, the Spanish specialty chemicals market had total earnings of $24.2 billion in 2008.
Finally, increasing investment in research and development has resulted in the development of the biotechnology industry in Spain. The industry grew at an astounding rate of 350% between 1998 and 2003. Currently, Spain’s biotechnology industry employs over 150,000 workers.
Exports and Imports
Spain’s trade plays a significant role in the nation’s economy, accounting for more than half of its GDP. The nation has, however, had a trade deficit persistently over the past few years, which stood at $77.5 billion in 2009. Spain’s weak trade scenario is attributable to several factors, predominantly the nation’s increasing reliance on imported petrol and decreased market competitiveness. Additionally, the steady decline of Spain exports is also attributed to the strength of the euro, since it was adopted by Spain for international trade, which has made Spanish exports more expensive.
Spain’s top export and import partners are from the EU region. Key export commodities of the nation include motor vehicles, foodstuffs, medicines, machinery and pharmaceuticals. During 2009, Spain had net earnings of $215.7 billion from its exports. This represented a decline of $70.2 billion from the export earnings of 2008.
Spain’s imports were valued at $293.2 billion in 2009, which was a considerable decline from the 2008 level of $415.5 billion. The reason for such a wide gap between Spain’s exports and imports is the lack of resources in the nation, particularly oil. The nation imports a sizeable 1.813 million barrels of oil per day. Other vital import commodities of Spain are mechanical and electric machinery, and iron and steel.