Spain's accession to the European Community--now European Union (EU)--in January 1986 required the country to open its economy to trade and investment, modernize its industrial base, improve infrastructure, and revise economic legislation to conform to EU guidelines.
These measures helped the economy grow rapidly over the next 2 decades. Unemployment fell from 23% in 1986 to a low point of 8% in mid-2007. The adoption of the euro in 2002 greatly reduced interest rates, spurring a housing boom that further fueled growth. The strong euro also encouraged Spanish firms to invest in the United States, where several Spanish firms have significant investments in banking, insurance, wind and solar power, biofuels, road construction, food, and other sectors. The end of the housing boom in 2007 and the international financial crisis led to a recession that began in the second quarter of 2008. Housing sales and construction declined dramatically, and the unemployment rate reached almost 23% by the end of 2011.
GDP growth for 2010 was -0.1%. The Spanish economy grew by 0.8% in the third quarter of 2011, Analysts predict that fourth-quarter growth was negative and that the economy will re-enter recession in the first quarter of 2012. The 2011 budget deficit is expected to be around 8% of GDP, but the new administration has already introduced serious cuts in order to reach the 2012 target of a 4.4% deficit. Spain’s debt to GDP ratio remains comparatively low (around 65% of GDP) due to budget surpluses maintained prior to 2008. The new government has pledged to implement rapid labor market reforms and complete the restructuring of the financial sector in an effort to stimulate growth and create employment.
Sources:CIA World Factbook (January 2012)
U.S. Dept. of State Country Background Notes ( January 2012)