SPANISH ECONOMY

Spain and Global Economic Crises



Spain and Global Economic Crises

The economy of Spain, like its population, is the fifth largest in the European Union (EU) and in absolute terms the twelfth in the world. In relative terms or purchasing power parity, is also among the list of top 10 countries. Since the crisis of the early 90's, the Spanish economy went through a decade of growth, becoming a steady expansionary phase. However from the year 2008 the economy suffers a decline in its macroeconomic indicators, leading to a long period of recession, which lasted three years 2008-2010 (Werding, 2010, p. 45). This stage was mainly caused by speculation in the previous stage, the housing bubble, the containment of bank lending after a decade of runaway lending, interest rate hikes and rising oil prices.

Although previously had various indices that showed signs of slowing, the damages were reflected in the economy since January of 2008, with the stock market crash with the problems in the housing sector. All this combined with a framework inflationary price increases in fuel and food products primarily in what has come to be called the 2008 economic crisis. However, the medium-term forecasts about the competitive strengths indicate a slow and arduous recovery.

The expansion phase (1994-2007): the introduction of the euro

Spain's economy began its recovery from 1995, bringing an upswing that has come down in early 2008, with an average annual GDP growth of 3.5%, which has been the highest growth period from the entry of democracy in 1975 (Tremlett, 2006, p. 55). The reasons driving this prolonged period of economic boom were two:

First, the incorporation of Spain into the European Monetary Union. The entry into force of the second phase of the Economic and Monetary Union of the European Union in 1994 led to a fall in interest rates, which worsened after the introduction of the euro as official currency, replacing the peseta which ceased circular in 2002. The lowering of the rates and the absence of exchange rate risk within the euro area came to cause the existence of negative real interest rates and encouraged an increase in investor confidence and strong credit growth, which led the increased demand for housing and durable consumer goods and subsequently the increased investment and employment of firms that benefited from increased demand. This decline in interest rates also brought the birth of the so-called housing bubble that inflated the price of housing rises during this period of more than 30% in real terms (Paul, 2009, p. 99).

The second cause of the expansion experienced by Spain was a massive influx of migrants, mainly from the year 2002, attracted by the growing demand for employment in the construction sector and some low-level basic services such as catering and added the domestic service. This arrival brought new impetus to consumption and investment; and also Spanish prevent strangulation due to lack of manpower in certain sectors (Bentolila and Jimeno, 2008, p. 13).

These factors mentioned were able to overcome a period characterized by rising ...