What is now the 8th largest economy in the world has evolved from the regulated economy of Francoism as the latter started to fade out in 1975.
From the late 1950s, Franco's regime initiated a set of deregulating moves away from its initial total control of the economy; these, along with large infrastructure projects and a gradual opening to tourism, resulted in the paramount economic growth almost overnight which came to be known as the "Spanish Miracle".
However, by Franco's death and the dawn of the constitutional monarchy, interventionism was still widespread: basic products like bread and sugar had their prices fixed by the government, large public firms controlled all sectors regarded as strategic (Telephone, tobacco, petrol, etc.), shops had fixed opening and closing times (although this also occurred in other European countries such as Germany), both passive and active interest rates were fixed by the government, etc. All these rigidities and more were made obvious by the 1973 oil crisis, which terminated the previous expansion cycle and unleashed a period of severe industrial crisis which lasted approximately a decade (1975-1985). This blow stressed the need to modernize the economy and join the European Community.
Spain's accession to the European Community, now European Union (EU), in January 1986 ushered the country into opening its economy, modernize its industrial base and revise economic legislation. The EU, with amounts of funds from the European Regional Development Fund- Spain greatly improved infrastructures, increased GDP growth, reduced the public debt to GDP ratio, reduced unemployment from 23% to 10%, and reduced inflation to under 3%.
Spain continued the path of economic growth when the ruling party changed in 2004, keeping robust GDP growth during the first term of prime minister José Luis Rodríguez Zapatero. However, by this time fundamental problems in the Spanish economy were self-evident. These were, according to the Financial Times, Spain's huge trade deficit (which reached a staggering 10% of the country's GDP by the summer of 2008), the "loss of competitiveness against its main trading partners" and, also, as a part of the latter, an inflation rate which is traditionally higher than the one of its European partners, lately affected by house price increases of 150% from 1998 and a growing family indebtedness (115%) chiefly related to the Real Estate boom and rocketing oil prices.
As Spain enters the second term of prime minister Rodríguez Zapatero, it has been seriously hit by the world liquidity crisis stemming from the credit crunch of 2008 which became fiercely apparent in Spain by April 2008. The new situation affecting the Western economies is predating on Spain, among others, by means of the burst of the Spanish property bubble, which used to account for much of the Spanish growth since 2001.
The rate of new residential construction has virtually halved in less than a year, coming to a halt in some areas. On the other side, due to the lack of own resources, Spain has to import all of its fossil fuels, which in an scenario of record prices added much pressure to the inflation rate. In this regard, gasoline and diesel were in June 2008 17% dearer than in January of the same year, and almost 20% more expensive than the prices of June 2007. Then, when international oil prices plunged, rises were much more moderate by September 2008 (gasoline 2.7% higher and diesel 6.7% compared to prices of January of the same year)
During the first quarter of 2008 the Spanish economy rate grew less than that of the third quarter of 1995, which marked the last quarter of the 1992-1993 recession. By that time, the Spanish economy had had five quarters in a row with a negative growth, and then, by 1997 it started a vigorous growth cycle. Also, during the first quarter of 2008 the Spanish economy grew less than EU major economy (namely Germany) for the first time in a decade. The outcome of this slower pace is that of effective reduced convergence with the European bigger economies, in contrast with the gains in convergence of the last decade.
The Spanish government official GDP growth forecast for 2008 in April was 2,3%, according to the estimate released. This figure was unlikely to be reached should the current rates maintained or, more likely, worsened during the remainder of the year. Indeed, in July, a new official estimate reduced the GDP growth forecast for 2008 to 1.6%. Most forecasters estimate rates around 0.8%, far below the outstanding 3% or higher average GDP growth during the 1997-2007 decade.
In June 2008 the inflation rate reached a 13 years high of 5.00%. GDP growth was a mere 0.1% in the second quarter, but still, better than other EU-economies which had contractions like Germany which had -0,5% or France or Italy, which got both a -0,3%. The context was not the best, the EU economy contracted as a whole, and other countries who had property bubles have in fact entered recession, like Denmark or Ireland. Economic minister Pedro Solbes ruled out the possibility of Spain entering stagflation. Then, with the dramatic decrease of oil prices that happened in the second half of 2008 plus the confirmed burst of the property booble, concerns quickly shifted to the risk of deflation instead. During the third quarter of 2008 the Spanish economy contracted for the first time in 15 years making very unlikely the latest government estimate of a 1.6% GDP growth for 2008.
The Spanish banking system has also been credited as one of the most solid and best equipped among all Western economies to cope with the worldwide liquidity crisis, thanks to the Spanish banking rules and practices, that obligue banks to have very high provisions.
As for the employment, after having completed substantial improvements over the second half of the 1990s and during the 2000s which put a few regions on the brink of full employment, Spain suffered a severe setback in October 2008 when it saw its unemployment rate surging to 1996 levels. During the period October 2007-October 2008 Spain saw had its unemployment rate climbing 37%, exceeding by far the unemployment surge of past
economic crisis like 1993's. In particular, during this particular month of October 2008, Spain suffered its worse unemployment rise ever recorded and, so far, the country is suffering Europe's biggest unemployment crisis.
Ever since the 1990s some Spanish companies have gained multinational status, often, but not only, expanding their activities in culturally close Latin America.
Some of these companies lead in various international scenarios, such as Telefónica (telecom and media), Inditex (retail, owner of brands like Zara), Banco Santander and BBVA (banking), Gamesa (renewable energies), Indra Sistemas (IT and defence), Pescanova (fisheries) or Repsol YPF (oil refinery).