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European-American Topics - Business - Spain's economy

Q&A: Spain’s economy runs with the bulls, looks to further economic progress with EU

By Kai Sandvig, business editor
Posted May 30, 2007


    Once known for armadas and conquistadores, Spain’s torrid GDP growth as of late doubles its EU colleagues through a mainly service based economy. Around 65 percent of Spain’s economy consists of service industries, compared to 17 percent in the industrial sector and 13 percent in construction. Through email correspondence with The European Weekly Online, the Spanish Embassy’s Economic and Commercial Spokesman, Alberto Nadal Belda, answered several pertinent questions regarding Spain’s economy.     

    In your own analysis: is Spain currently experiencing a period of economic growth? If you believe it is currently experiencing growth, why do you believe this growth is occurring and what sectors of the economy remain the most vital to this growth?  

    Spain is experiencing an unprecedented economic growth unparalleled among big European countries. It’s real GDP change has been well above the European average for about a decade, growing at nearly 4 percent in 2006, after the 3.5 percent of 2005. Job creation has been strong and the unemployment rate fell from almost 23 percent in 1995 to 8.5 percent in 2006. In some years, half of the job creation in Europe has occurred in Spain, even though Spain only represents 8 percent of European total population.  

    The Spanish economic success is due to a perfect mix of internal and external factors.  

    On one hand, Spain largely benefited from entering the EU in 1986 and opening its economy. The financial stability granted by the Euro system and the inflow of structural aid from Brussels allowed Spain to improve its infrastructure and benefit from the low interest rates to boost the national demand. 

    On the other hand, Euro-aids and openness alone cannot explain the uniqueness of Spanish growth, as Spain outperformed many other European countries in similar conditions. Structural reforms in the 90’s have been fundamental to boost the economy, including liberalization of strategic markets and the privatization of inefficient state-owned companies. Besides balancing government budget and, above all, the tax reforms that have lowered the fiscal burden to the smallest level in Europe have created a positive environment that allowed the Spanish economy to grow so robustly. Finally, reforms in the labor market have contributed to a dramatic rise the employment rate that has sustained the economic activity. Nowadays, Spain has one of the most efficient and flexible labor markets in Europe.  

    Have any recent government policies helped aid economic growth? 

    [Government] Structural reforms have been crucial to the economic growth that Spain has experienced. Liberalization of markets and privatization have contributed to the restructure of  the Spanish economy in a more modern and efficient way. This has contributed to a new phenomenon in the country’s industry: the internationalization of Spanish firms. Since 1996, more and more businesses have had the capacity and vision of expanding their operations abroad, especially, but not only, in Latin America. The foreign direct investments (FDI) coming from Spain have been in such strategic sectors as telecommunication, civil engineering and banking, and are a clear sign of the competitiveness of the Spanish industry and service-provider sector.  

    Moreover, governmental policies have had a positive impact on all aspects of what is now a modern and dynamic European economy. Among them, it’s important to highlight the achievement of balance of the government budget in the first place. Spain is now one of the few countries in Europe that runs a budget surplus.  

    What role have foreign investors played in Spain’s economic growth? What countries and corporations have invested substantially in Spain’s economy? 

    Foreign Direct Investments have been strong in strategic sectors such as biotech, renewable energy, water treatment and desalination, industrial technology and aerospace industry. 

    Foreign investment has played an important role in the Spanish economy. In the last 40 years, the FDI have certainly contributed to introduce new technology and capitals to the country, as well as improve the entrepreneurial spirit in the country.  

    However, it is necessary to notice that FDI are very different in nature nowadays to what they were thirty years ago. Earlier FDI were directed to Spain in search of cheap labor to produce goods for re-export to Europe. Now, FDI come to Spain to find strategic partners to the Spanish and world markets.  

    How would you characterize Spain’s consumer sentiment? 

    The rise in consumption in the last fifteen years has been a fundamental factor in explaining Spanish economic growth on the demand side. What lies behind this is an unprecedented debt capacity of Spanish households, which for the first time in recent history have had the opportunity to think for the long run. Debt costs have gone down to the European standards, while ten years ago the market risk premium on a mortgage could be 400 basis points. 

    How would you describe Spain’s relationship with other European Union members and its role in the union?  

    Spain is among the most Euro-enthusiastic countries in the European Union and it is well involved in the decision making process. The Spanish economy is certainly the most active in the EU and it’s fully integrated in the Union’s trade activity. As a matter of fact, Europe represents 75 percent of Spanish exports.     

    But the role of Spain in the EU goes beyond trade. Spain leads the building process of Europe and also has the specific role of bringing Latin America closer to Europe, due to its cultural affinity with the Spanish speaking countries in the Americas alongside Spain’s growing economic interests in the region.  

    Big challenges are in sight for Europeans, and Spain is fully engaged in attaining such important goals. These goals include a common European policy on immigration, a new energy strategy and an environmental protection policy.  

    Resources provided by the Spanish Embassy in Washington, D.C. include: (


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