Spain:Navigating through an Economic Crisis
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Case Details:
Case Code : ECON043
Case Length : 19 Pages
Period :-
Pub. Date : 2013
Teaching Note :Not Available
Organization : --
Industry : -
Countries : Spain
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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“Spain is out of recession but not out of the crisis. The task now is to achieve a vigorous recovery that allows us to create jobs.”
– Mariano Rajoy, Prime Minister of Spain, 2013.
Introduction
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In April 2013, the Spanish government downgraded its growth forecast for 2013 to -1.3 % from the -0.5% it had projected earlier. In 2012, the economy contracted by 1.37%. After a boom period that lasted for about 15 years till late 2007, Spain slipped into recession in 2008, and faced one of its worst economic crises. The crisis began with the bursting of the real estate bubble and extension of the international financial crisis and was aggravated by the internal imbalances. With the country’s unemployment hitting a record high of 27.16 percent in the first quarter of 2013 , the out of work population increased to more than 6 million.
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The various harsh austerity measures initiated by the government, including savings, increase in taxes, and cut in public spending, caused massive public unrest. The country reported that the exports in the first six months of 2013 were at €118.72 billion, growing by 8% compared to the same period the previous year. This resulted in the trade deficit falling by 68.8%. In June 2013, the trade deficit was €106 million as against € 2.7 billion in June 2012. According to the government, the reduction in the deficit showed that the recession was coming to an end.
Spain joined the European Union in 1986 and adopted the euro as its currency in 1999 – one of the first countries to do so. From the late 1990s, the Spanish economy experienced a boom fueled by the growth in the housing sector and the euro led low interest rates. The real estate sector grew rapidly, thanks to the low interest rates, increasing incomes, influx of immigrants, and the demand from foreign investors. Between 2004 and 2008, real estate prices rose by 44%. The economy grew at an average of 3.7% per year from 1999 to 2007.
In 2008, Spain witnessed a fall in GDP mainly due to the collapse in the housing market and a banking crisis. In late 2007, the demand for housing started to fall, dropping further in 2008. This had an adverse impact on construction workers and housing agencies and led to an increase in unemployment, which touched almost 20% in 2010. Many of those who lost their jobs had taken housing loans from banks and were unable to repay them. At the same time, property value also started to decline.
The Origins
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