Membership of the EU since 1986 and of the euro zone since 1999, as a founder member, have transformed Spain’s economy and turned it from one of Western Europe’s most protected and least competitive into one of its most dynamic.
In the process, the economic structure has changed significantly: agriculture, for example, generated 3% of GDP in 2017 and employed 4% of the workforce, down from 9% and 20%, respectively in 1978.
#Spain has become far wealthier in the past 40 years: per capita GDP at purchasing power parity increased from close to US$8,000 in 1978 to more than US$38,285 in 2017, a tad above #Italy, according to the IMF.
EU and euro zone membership have been hugely beneficial. More than 30 years after joining the #EU, #Spain was still a net recipient of EU funds. Between 1986 and 2016, the country received €95 billion more than what it contributed (excluding co-funding of EU projects).
Spain’s infrastructure ranked 13th out of 137 countries in WEF’s competitiveness index. But it has come at an excessive cost. Spain wasted more than €81 billion on ‘unnecessary, abandoned, under used or poorly planned infrastructure’ between 1995 and 2016.
As well as providing funds to develop infrastructure, EU membership has made macroeconomic policy more disciplined, lured FDI, and improved financial conditions (a stable currency & low interest rates) for Spanish companies to make acquisitions abroad & facilitated export growth
The stock of Spain’s inward investment soared from $66 billion in 1990 to $644 billion in 2017, and in GDP terms stood at 52.3%, compared with 62.6% for the #UK, 36.1% for #France, 27.2% for #Germany and 22.9% for #Italy. Now this is what I call an open economy...;)
This is one for scholars engaged with the varieties of capitalism (VoC) literature and that have always put or seen Spain in the box of "domestic demand-driven Mediterranean capitalism". "Exports of goods and services in #Spain increased from 15% of GDP in 1978 to 34.1% in 2017"
As is well known, the economy dipped in 2008 when a massive property bubble burst (the number of housing starts in 2006 was more than Germany, France and the UK combined), triggering, along with the Global and Euro crisis, a Great Recession
The hit was substantial. Spain’s economic output shrank 9.2% between 2008 and 2013. The non-performing loan (NPL) ratio for banking business in Spain surged from 0.7% of total lending in 2006 to a peak of 13.8% in 2013.
It has been a long haul pulling Spain out of recession, aided by low interest rates and oil prices and not just by labour market and banking reforms and austerity measures. Not until 2017 did economic output recover its pre-crisis level.
The Spanish current account recorded its fifth consecutive surplus in 2017, an impressive turnaround and largely thanks to record exports of goods and buoyant tourism (82 million visitors) and a lower net
debtor position relative to the rest of the world.
Banks are also much healthier (the NPL ratio was down to around 6% in 2017). Nevertheless, (youth) unemployment remains the biggest problem of Spain.
On the fiscal front, cutting the budget deficit has been a long and winding road over the past decade. Targets agreed with Brussels have either been missed or only met when revised upward. Tax revenue peaked in Spain at 36.4% of GDP in 2007 and has yet to recover that level.
This is important. "Compared with more than 40 years ago when avoiding taxes was something of a national sport – total tax revenue stood at less than 20% of GDP in 1975 – #Spain’s tax system today is relatively efficient and highly computerised."
The number of people making personal income tax returns in Spain increased from 5.8 million in 1980 (15% of the population) to 19.5 million in 2017 (42%). This is a very positive development...
Tax evasion was made an offence in 1977, a wealth tax was introduced
in 1981 and VAT in 1986 upon Spain’s accession to the EEC. Nevertheless, tax fraud and evasion remains high. The Tax Agency recovered €14.8 billion in 2017, for example.
One of the biggest fiscal challenges for #Spain is in the social security system. Half the total budget deficit in 2017 of €35.7 billion (3.1% of GDP) came from the Social Security system.
On the positive side, Spaniards are living almost 10 years longer today than they did 40 years ago. Life expectancy at birth is 83 years, the third highest in the world after Japan and Switzerland. Spaniards today are on average taller than the British, Italians and French.
In a major demographic change, deaths outstripped births in 2015, for the first time since 1941. The fertility rate of 1.3 children per woman (2.5 in 1978) is one
of the world’s lowest. In 2050, Spain will have 77 retired people per 100 people
With the ending of indexation, the government needs to implement other measures to reinforce the pensions system, such as making plans taken out by individuals more attractive (the amount that is tax deductible was reduced from €12,000 to €8,000 in 2015).
Saving for a rainy day, however, is beyond the means of a large swathe of the working population who barely get by as it is. The household savings rate was below 6% of gross disposable income in 2017, well under the peak of 13.4% in 2009.
Food for thought. Private pension funds in Spain were equivalent to 13.6% of GDP in 2017 (my update) compared with 208% in Denmark and 105% in the UK. However, in Germany they are at at 7% and in Italy and France at 10%. See here: statista.com/statistics/419…
Research and innovation also remain weak areas in Spain, as evidenced by the relatively poor ranking of Spain’s universities in world classifications, the low level of spending on R&D of 1.2% of GDP and the very small number of patents registered.
Disturbing fact. "#Spain accounts for 9% of the EU’s population and less than 1% of its total patents each year"
Spain has no shortage of talented young scientific researchers, but too often they have been left with no option but to seek employment abroad. In general terms, Spain needs to equip its young people with the higher productivity skills that tech-oriented businesses demand.
There are, however, some striking successes; several Spanish companies were involved in the creation of Curiosity, the robot designed to find out whether there was or is life on Mars, and 3 out of every 5 flights worldwide are controlled using Spanish air navigation systems
#Spain was ranked 36th in the IMD competitiveness ranking in 2018, up from 45th in 2013, its lowest point. The main weaknesses include the unemployment rate, the size of total general government debt, employee training and language skills.
Skill demands are more polarised in Spain than in other OECD countries, with a big share of jobs requiring either very low levels of education or very high levels. The share of all jobs requiring only a primary education is higher in Spain (25%) than in any other OECD country