Economy

According to World Bank, Spain's economy is the eigth biggest worldwide and the fifth largest in Europe. As of 2005, GDP was valued at $1.12 Trillion, just after Italy and before Canada (see List of countries by GDP (nominal)).

Spain's mixed economy supports a GDP that on a per capita basis is 90% of that of the four leading West European economies and slightly above the European Union average. The centre-right government of former Prime Minister Aznar worked successfully to gain admission to the first group of countries launching the European single currency, the euro, on 1 January 1999. The Aznar administration continued to advocate liberalization, privatization, and deregulation of the economy and introduced some tax reforms to that end. Unemployment fell steadily both under the Aznar and Zapatero administration. It affects now 7.6% of the labour force (October 2006) having fallen from a high of 20% and above in the early 1990s. It also compares favourably to the other large European countries, most notably, Germany with an unemployment of approximately 12%. Growth of 2.4% in 2003 was satisfactory given the background of a faltering European economy, and has steadied since at an annualized rate of about 3.3% in mid 2005 and 3.5% in the first quarter, 3,7% in the second quarter and 3,8% in the third quarter of 2006. There is a widespread concern that the growth is too concentrated upon a few sectors (mainly residential building and those related to it). The current Prime Minister Rodríguez Zapatero has pointed out as matters to be addressed during his administration plans to reduce government intervention in business, combat tax fraud, and support innovation, research and development, but also intends to reintroduce labour market regulations that had been scrapped by the Aznar government. Adjusting to the monetary and other economic policies of an integrated Europe — and reducing unemployment — will pose challenges to Spain over the next few years.

There is general concern that Spain's model of economic growth (based largely on mass tourism, the construction industry, and manufacturing sectors) is faltering and may prove unsustainable over the long term. The first report of the Observatory on Sustainability (Observatorio de Sostenibilidad) — published in 2005 and funded by Spain's Ministry of the Environment and Alcalá University — reveals that the country's per capita GDP grew by 25% over the last ten years, while greenhouse gas emissions have risen by 45% since 1990. Although Spain's population grew by less than 5% between 1990 and 2000, urban areas expanded by no less than 25% over the same period. Meanwhile, Spain's energy consumption has doubled over the last 20 years and is currently rising by 6% per annum. This is particularly worrying for a country whose dependence on imported oil (meeting roughly 80% of Spain's energy needs) is one of the greatest in the EU. Large-scale housing and tourism development are placing severe strain on local land and water resources. Meanwhile, global warming paints a bleak future for much of Spain for the next century, with the potential to turn areas that are already fairly arid into semi-desert. The prospects for Spain's tourist industry are also dire. Recent developments to deal with the country's growing water shortage include the building of reverse osmosis plants along the Spanish Costas. These heavy energy using facilities are unlikely to supply much over 1% of Spain's total water needs, although they will provide an important contribution to local water supplies. Future water shortages are likely to be made even more acute by the building of golf courses along Spain's Mediterranean coast. Other perennial weak points of Spain's economy include one of the lowest rates of investment in Research and Development, and an education system slated in OECD reports as one of the worst in Western Europe. Many manufacturing jobs are being lost to cheaper workforce countries in Eastern Europe and Asia.

On the brighter side, the Spanish economy is credited for having avoided the virtual zero growth rate of some of its largest partners in the EU (namely France and Germany) by the late 90's and beginning of the 21st century, in a process which started with former Prime Minister Aznar's liberalization and deregulation reforms aiming to reduce the State's role in the market place. Thus in 1997, Spain started an economic cycle - which keeps going as of 2006 - marked by an outstanding economic growth, with figures around 3%, often well over this rate.[4] In fact, the country's economy has created more than half of all the new jobs in the European Union over the past five years.

This has narrowed steadily the economic gap between Spain and its leading partners in the EU over this period. Hence, the Spanish economy has been regarded lately as one of the most dynamic within the EU, even able to replace the leading role of much larger economies like the aforementioned, thus subsequently attracting significant amounts of foreign investment.