Spain is the 5th largest economy in Europe and is classified as a developed high income country. Spain was one of the fastest growing economies in Europe until 2007, when it reached GDP per capita of 105% of the EU average. Strong growth in the period of 1997-2007, however, was fuelled primarily by property and credit boom, driven by favourable interest rate environment and inflow of foreign investments. As a consequence of the credit boom the average level of household debt more than tripled during this period. At the peak in 2007 construction sector contributed 16% to GDP and employed 12% of the total workforce. Eventually, as the global recession started, the country was severely impacted, causing layoffs and contraction of domestic demand at the time when exporting sectors were also affected by weakening of demand of its main trading partners. Consequently, Spain entered the economic recession later than other countries in the European Union, but the recession lasted longer from 2009 to 2013.
Already high rate of unemployment reached the peak of 26.1% in 2013. The Country started to recover in 2014 by posting 1.4% economic growth and in 2015 GDP growth reached already 3.2%. Positive development is expected to continue with GDP estimated to expand by 2.8% in 2016 with unemployment falling further, but remaining still fairly high at 19.8%.
Majority of the GDP is generated by services, as tourism sector is very strong with Spain being the third most visited country in the world with 70 million visits estimated for 2016. Altogether services account for 74% of the GDP, followed by industry with 18%. Spain has a number of multinational companies in the fields of infrastructure, energy, telecommunication, automotive and retail. Main export partners are the countries of the European Union: France, Germany, United Kingdom, Italy and Portugal.
Spain was also affected by the European sovereign debt crisis due to high budget deficits and weakness of the banking system that increased the risk profile of the country and led to forced austerity measures.
Although the development in the last couple of years has been positive, economic outlook has been dimmed by recent political uncertainties that have now ended and strong domestic demand, fuelled by lower oil prices and favourable interest rate environment, has given significant boost to the economy.
The bottlenecks of the Spanish economy remain to be weak education system and high underground economy that masks the actual consequences of high official unemployment rate.