The Economy of Spain - Example

RUNNING HEAD: COUNTRY REPORT (SPAIN) Country and Market Report (Spain) Name Subject Date Country Report Spain Being the 12th largest economy in the world, and also ranking 5th in the whole of Europe in terms of nominal GDP assessments, Spain is internationally recognized as the 20th most industrialized nation in the world. Up to 2008 Spain attracted a significant amount of investors into its economy due to the political stability, economic boom and investing opportunities that Spain was experiencing. This made Spain to be recognized by her European counterparts as being the most vibrant economy in all of Europe. The economy of Spain is also renowned for its ability to always be experiencing a constant growth rate as opposed to having a zero growth rate that is even being experienced by larger and more developed countries in Europe. Moreover, more than 50% of all employment opportunities created within the European Union in the last half a decade is directly linked to Spain’s economic activities. The economy of Spain has most recently been one of the largest benefactors of the Worldwide Estate Boom. This Worldwide Estate Boom impacted their construction industry and also increased employment opportunities whereby there was an increased GDP representation of the construction sector to 16% and 12% on employment. It has been the view of many economists the most recent being a certain article in a German local newspaper concluding after doing some calculations that the German economy is being slowly being outdone by the Spanish economy and if Spain continues at its current path the German economy will be surpassed by the Spanish economy by 2012. Nevertheless this Worldwide Estate Boom as also brought with it some detrimental effects on the economy. The construction and development sector was also a victim of the global financial crisis although it was as hard hit as compared to the same sectors in other Europeans countries and other countries around the world. This has been through a heightened personal debt level in the Spanish economy. This has been due to the fact that prospective homeowners are enticed to purchase these beautiful houses but luck the fiancés to do so therefore the take up loans or mortgages and pay up slowly. This resulted to the usual per household debt to go up three times its previous level. This has greatly affected the lower and middle class citizens who are in a lot of pressure to clear up their debts. The average ration of indebtedness to income has shot up to about 125%, owing principally to costly boom time mortgages that almost always are very much higher than the original price of the house. This has led to some Economists speculating of a looming recession for Spain in the near future. The recent boom in Spain’s economy in addition to the increased in the size of the European Union by more European countries joining in has led to the increase of Spain’s GDP per capita percentage in relation to the European Union’s per capita average to (105%) this has put it slightly up on the list ahead of Italy with (103%). Spain was also recognized by the European Union as being one of the only nations that had their GDP surpassing the 125% mark of the GDP per capita usual level. The major regions in Spain that contributed to this average level of 125% of the GDP per capita were Madrid, Navarre and the Basque Autonomous Community. Extremadura was also a contributing region with a level of 85%. Despite the benefits that Spain has experienced following the Global Real Estate Boom the worldwide financial crisis that happened recently has heavily affected the Spanish economy and has gone ahead to blow this property bubble. The Spanish Prime Minister has been a very great contributor to the current good stats of the Spanish Economy. Through his economic strategies and also his ability to maintain political stability within the country has greatly benefited the Spanish economy. He has also kept unemployment at bay by ensuring that the unemployment is at a low level. He has done this by maintaining a 6% unemployment rate which is very low as compared to other countries across the world and also considering the current economic times. However despite this great attributes of the Spanish economy, The Spanish economy also has a negative side. The Spanish economy is experiencing high inflation as compared to other countries. This has consequently resulted to heightened prices of various products putting pressure on the lower and middle class citizens. Spain is also known to have one of the most deprived education system among the countries recognized to be developed across the world. This has resulted in most local Spanish countries preferring to employ foreigners as compared to people who have studied in Spain. The Spanish Economy has also been negatively impacted by the huge illegal immigration of people into the country which has been a long time problem. This has been mostly from Africa. This has greatly strained the country’s ability to provide social amenities to its growing population. This has also led to increased level of unemployment. In the future Spain plans in converting all its energy productions into clean energy production that have zero emissions to the environment. This is seen in their efforts in wind energy productions, construction of self-sustainable building that produce their own power through solar power windows and investing in other ‘going green’ activities. Spain also plans to improve its automotive industry in the future by investing in construction of bigger plants for car manufacture and in turn increasing employment opportunities. Market Report (Spain) Spain’s construction and development sector has been experiencing a boom in the recent past. This has been majorly due to the fact that Spain’s construction and development industry is has been heavily invested in by the banking sector. Therefore the banking sector normally affects the construction sector. Spain’s construction and development sector has been steadily growing over the past half a decade as seen through the improvement of the real estate industry whereby there has been the construction and development of a lot of high-rise properties and also more and more people own homes across the nation. The development and expansion of the construction industry has also resulted in the creation of employment opportunities for many people across Spain in terms of real estate agents, construction workers, property brokers and many other jobs. The construction industry is directly linked to the development sector in that although the construction industry is involved in the construction of these properties, it is the banking sector which is the main arm of the development sector that finances most of this construction work through bank loans and leases. Moreover, once these properties are ready for sale it is through banks that prospective homeowners and property developers get finances in terms of loans and mortgages in order to purchase these homes. The construction and development sector was also a victim of the global financial crisis although it was as hard hit as compared to the same sectors in other Europeans countries and other countries around the world. This was as a result of the sound and steadfast economic policies and financial strategies applied by the Spanish financial sector whereby the Bank of Spain has robust regulatory bearing and keen overseeing of all financial and economic activities and climate across Spain, has a well-organized, has a banking corporate model that is primarily focused on retail banking founded on the grounds of proximity to consumers contrasting with most banking corporate models that primarily focus on originate to distribute. Spain was able to calm down the situation and also reduce the effects. Compared to countries like the United States whereby there were thousands of fore closures due to the fact that people had taken up so many mortgages and were unable to pay therefore banks had to evict them from their homes and sell these properties, Spain did not go through this as it had put in place loan counter measure programs that averted the need for fore closure with banks. It had also put in place measure such as high interest rates on mortgages and loans that discouraged people from taking up huge loans that they would most likely be unable to pay. The Spanish Banking sector had also put in place strategies that would allow them to continue their normal activities even with overwhelming unpaid loans from their clients, as opposed to other countries crippled by this crisis whereby some banks had to close down due to the overwhelming loans that were unpaid. Nevertheless, this global financial crisis had an adverse negative effect on the economy of Spain through the construction and development sector. This was due to the fact the property boom being experienced in Spain due to the Global Real-estate Boom was completely shuttered and it was the main factor that was leading to the growth of the Spanish economy. Due to the rapid decline of the property values and the shooting up of the unemployment rates there was the decreased value and quality of the asset value and quality of banks. This was caused by the fact that banks had given so many loans and mortgaged a lot of property and assets to prospective homeowners who were now unable to settle their debts. Banks had increased their lending rates to the construction and development sector due to the fact that there was a very high demand on property and housing whereby everyone wanted to own a home but due to the high price of properties and homes it was up to this banks to loan people money or offer mortgages for this properties in trust that they would pay in the agreed time period. Other reasons that led to the elevated lending rates by banks to the construction and development sector was the booming tourism sector that required a lot of property development and hotel construction, there was also low interest rates, the ease access to credit and a very favorable economic climate. Due to severe decrease in the real estate market size due to the fact that property purchase and sale became a risky business and the outright decrease in growth of credit, banks and other financial and lending institutions had an increase in the unpaid loans and written off debts, unfinished mortgages and foreclosures. Generally there was an elevated number of non-performing loans (NPLs), in banks, other financial and lending institutions. (Crawford 2005) However , the banking industry was able to recover from this this was through application of strategies such as debt for equity swaps the banks were also able to recover their properties develop them more and sell them and there is constraint for better-quality and more reliable disclosure practices on loan reforms. Better financial strategies and economic policies have been put in place to be to ensure that incase of another financial crisis they will not be affected as they were. The construction industry is also directly linked to the tourism sector whereby due to the increased tourism activities across Spain there has been an increased demand for property and property development. Tourism in Spain is a very big sector whereby it receives millions of visitors every year this is because of its historical landmarks, its adorning cities, its beautiful beaches, the breathtaking country sides and also its sporting activities. In the recent years most of the tourists coming into Spain have been linked to sporting activities that take part majorly European football and Formulae1 rally. In last half a decade with the European champion league finals being held in Spain it has attracted millions of tourists every year due to these games. Therefore the sporting world has greatly benefited the Spanish Tourism sector. The banking industry is heavily investing in the tourism sector through increasing lending rates to prospective property developers who are in the business of constructing, hotels, developing beach property and also theme parks. The tourism sector has also highly benefited from the political instability that is experienced in Spain whereby tourists have some sense of safety while touring Spain as compared to other major tourist destination. This political stability has also led to the attracting of investors to invest on the tourism sector and other sectors (O’Neill 2006). References Article: Investing in Spain by Nicholas Vardy - September, 2006“A global investor's discussion of Spain's economic boom” The Pain in Spain: (May 1, 2009) On May Day, Nearly 1 in 5 are Jobless by Andrés Cala, The Christian Science Monitor Alternatives to Fiscal Austerity in Spain from the Center for Economic and Policy Research, July 2010 O'Neill, Michael F.; McGettigan, Gerard (2005), "Spanish biotechnology: anyone for PYMEs?” Drug Discovery Today, News and Comment (London: Elsevier) 10 (16): 1078–1081, 15 August 2005 Economist Intelligence Unit (28 April 2009),"Spain Economic Data", Country Briefings (The Economist), archived from original on 19 May 2009, retrieved 2 May 2009 Crawford, Leslie (8 June 2006), Boomtime Spain waits for the bubble to burst, Financial Times, Europe (Madrid),  Read More