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Until 2008 the economy of Spain had been regarded as one of the most dynamic within the EU, attracting significant amounts of foreign investment. Spain's economy had been credited with having avoided the virtual zero growth rate of some of its largest partners in the EU. In fact, the country's economy had created more than half of all the new jobs in the European Union over the five years ending 2005, a process that is rapidly being reversed. More recently, the Spanish economy had benefited greatly from the global real estate boom, with construction representing an astonishing 16% of GDP and 12% of employment in its final year. According to calculations by the German newspaper Die Welt, Spain had been on course to overtake countries like Germany in per capita income by 2011. However, the downside of the now defunct real estate boom was a corresponding rise in the levels of personal debt; as prospective homeowners had struggled to meet asking prices, the average level of household debt tripled in less than a decade. This placed especially great pressure upon lower to middle income groups; by 2005 the median ratio of indebtedness to income had grown to 125%, due primarily to expensive boom time mortgages that now often exceed the value of the property. A European Commission forecast had predicted Spain would enter a recession by the end of 2008. According to Spain’s Finance Minister, “Spain faces its deepest recession in half a century”. Spain's government forecast the unemployment rate would rise to 16% in 2009. The ESADE business school predicted 20%. Due to its own economic development and the recent EU enlargements up to 27 members (2007), Spain had a GDP per capita of (105%) of EU average per capita GDP in 2006, which placed it slightly ahead of Italy (103%). As for the extremes within Spain, three regions in 2005 were included in the leading EU group exceeding 125% of the GDP per capita average level: Basque Autonomous Community leading with Madrid and Navarre, and one was at the 85% level (Extremadura. According to the growth rates post 2006, noticeable progress from these figures happened until early 2008, when the Spanish economy was heavily affected by the puncturing of its property bubble by the global financial crisis. The centre-right government of former prime minister José María Aznar had worked successfully to gain admission to the group of countries launching the euro in 1999. Unemployment stood at 7.6% in October 2006, a rate that compared favorably to many other European countries, and especially with the early 1990s when it stood at over 20%. Perennial weak points of Spain's economy include high inflation, a large underground economy, and an education system which OECD reports place among the poorest for developed countries. However, the property bubble that had begun building from 1997, fed by historically low interest rates and an immense surge in immigration, imploded in 2008, leading to a rapidly weakening economy and soaring unemployment. By the end of 2010 unemployment had reached 20.33 (over 28% in Andalucia and the Canaries). |
