The Spanish Economy- Going Under

Topics: Macroeconomics, Inflation, Recession Pages: 5 (1752 words) Published: March 29, 2013
Data Plots

Spain experienced a ‘booming’ economy from 1990 to 2007, when growth declined and dipped into negative growth in 2008. It has remained stagnant ever since.

Unemployment in Spain has been relatively high constantly, but it peaked in 1994 and again 2008 onwards. It still has not stopped rising.

Spain had high inflation in the early 90s, but from 1996 onwards in stayed between 2.5% and 4.5%. From 2008 – at present Spain has had very low inflation, which is expected with high unemployment. Inflation has a loose relationship with unemployment, when unemployment is up, inflation is down and visa versa.

Government spending was in decline between 1995 and 2006 (data does not show pre 1995) but had risen dramatically since 2007 due to high unemployment. It is starting to decline again (2010 onwards) due to government austerity programs.

Between 1997 and 2008, the Spanish government were in surplus due to a booming economy. But since 2008 it has run at a budget deficit, spending more than it receives. (Data starts at 1995).

Debt peaked in 1996, and reduced yearly until 2007. The recession hit and it rose rapidly and is still rising. It is also worth noting that it behaves inversely with level of government spending. Structural problems in the Spanish Economy

The Spanish economy is riddled with problems that cause its poor economic performance in recent years. The government has worked up an enormous debt as it combats some of these problems, whilst worsening some economic variables in the process of combatting others. When considering the Spanish economy, unemployment is the main problem affecting the population. With the unemployment rate at 26% (Trading Economics 2013) in the last quarter of 2012, a quarter of the workforce is without work. This is incredibly unproductive as the skills and output of this labour is wasted, bad for individuals as they have less disposable income, and bad for government debt as welfare payments higher when unemployment high (coupled with loss in income tax revenue from the loss in jobs). This unemployment, caused by stagnation and recession in economic growth, is especially bad in Spain for a number of reasons, some cyclical and predicable, some structural and less typical of recession. When the recession hit Spain, businesses (as in all economies in recession) made efficiency cuts and changes. One change businesses make when trying to improve efficiency is shedding employees that are not essential. Before the recession, Spain had an enormous case of over-employment: businesses had more workers employed than necessary in almost every sector. This was most notable in service industry booming off of tourism- shops often had three or four security guards ect. When Spanish business became more efficient, a huge amount of people were ‘laid off’ as business found they could run effectively with far less staff than they had. This helped contribute to the 15.8% rise in the unemployment rate in seven years. All economic sectors downsized their workforce, but construction almost collapsed completely. After the enormous growth experienced in the last decade in the Spanish property market (house prices rose 44% between 2004 and 2008), an enormous construction sector had developed. This is to be expected as it conforms with the law of supply, suppliers supplied more at higher prices. When the property bubble burst, demand for construction workers and building materials fell drastically- 45% less output in 4 years (graph below.) This loss in output has of course left many skilled construction workers, from architects to brick- layers, unemployed. ( 2010) Youth unemployment in Spain is more than double the European national average; 51.4% in December 2012 (Telegraph 2013). This is the most worrying statistic in Spain at present. Of the most educated generation yet, over half of those willing and able to work do not have a job. This does not bode...

References: The Spanish (Author), February 2013 ‘The Spanish economy overview’ –
C. Penty, E. Ross, B. Sills, June 2012 ‘Spain asks for $125 Billion Bank Bailout as crisis worsens’ – Bloomberg. (
Trading economics (author), September 2012, ‘Spain 10yr Bonds’ – Trading economics .
Karen Domínguez Burke, August 2012, ‘From collapse to austerity in Spain’- Socialistworker.org
DG ECFIN (Author), February 2013, ‘Economic forcasts- Spain’ – DG ECFIN.
Narcon Drug information department, Febuary 2012 ‘Spain drug addiction’- Narcon
Carlos Muella, December 2012,  España recycle –Greenwisebusiness.
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