Economy of Spain

The economy of Spain is a highly developed social market economy. Itâ€™s the world's 15th largest by nominal GDP and the sixth-largest in Europe. Spain is a member of the European Union and the eurozone, as well as the Organization for Economic Co-operation and Development and the World Trade Organization. In 2022, Spain was the nineteenth-largest exporter in the world and the fifteenth-largest importer. Spain is listed 27th in the United Nations Human Development Index and 37th in GDP per capita by the World Bank. Some of the main areas of economic activity are the automotive industry, medical technology, chemicals, shipbuilding, tourism, and the textile industry. Among OECD members, Spain has a highly efficient and strong social security system, which comprises roughly 23.2% of GDP.

Top Sectors in Spain

Tourism in Spain

A 2015 survey by the World Economic Forum proclaimed the country's tourism industry as the world's most competitive. The 2017 survey repeated this finding. By 2018 the country was the second most visited country in the world, overtaking the US and not far behind France. With 83.7 million visitors, the country broke in 2019 its own tourism record for the tenth year in a row. The size of the business has gone from approximately â‚¬40 billion in 2006 to about â‚¬77 billion in 2016. In 2015 the total value of foreign and domestic tourism came to nearly 5% of the country's GDP and provided employment for about 2 million people. The headquarters of the World Tourism Organization are located in Madrid.

Automotive industry in Spain

The automotive industry is one of the largest employers in the country. In 2015 Spain was the 8th largest automobile producer country in the world and the 2nd largest car manufacturer in Europe after Germany. By 2016, the automotive industry was generating 8.7 percent of Spain's gross domestic product, employing about nine percent of the manufacturing industry. German companies poured â‚¬4.8 billion into Spain in 2015, making the country the second-largest destination for German foreign direct investment behind only the U.S. The lion's share of that investment â€”â‚¬4 billionâ€” went to the country's auto industry.

Energy in Spain

Spain is one of the world leaders in renewable energies, both as a producer of renewable energy itself and as an exporter of such technology. In 2013 it became the first country ever in the world to have wind power as its main source of energy.

Agribusiness in Spain

Agribusiness has been another segment growing aggressively over the last few years. At slightly over 40 billion euros, in 2015 agribusiness exports accounted for 3% of GDP and over 15% of the total Spanish exports. By 2012 Spain was by far the biggest producer of olive oil in the world, accounting for 50% of the total production worldwide. By 2013 the country became the world's leading producer of wine; in 2014 and 2015 Spain was the world's biggest wine exporter. Spain is the largest producer and exporter in the EU of citrus fruit (oranges, lemons, and small citrus fruits), peaches, and apricots. It is also the largest producer and exporter of strawberries in the EU.

Food retail in Spain

In 2020, the food distribution sector was dominated by Mercadona (24.5% market share), followed by Carrefour (8.4%), Lidl (6.1%), DIA (5.8), Eroski (4.8), Auchan (3.4%), regional distributors (14.3%) and other (32.7%).

Mining in Spain

In 2019, the country was the 7th largest producer of gypsum and the 10th world's largest producer of potash, in addition to being the 15th largest world producer of salt. Copper (of which the country is the second producer in Europe) is primarily extracted in the Iberian Pyrite Belt. The province of Granada features two mines of Celestine, making the country a major producer of strontium concentrates.

Spain - Key Economic Indicators

Exports & Imports

Spain is a major exporter of goods and services, ranking 19th globally. Key exports include vehicles, machinery, chemicals, food and beverages, and tourism services. France, Germany, and Italy are its top trading partners. Imports primarily consist of machinery, energy products, and chemicals. Spain typically maintains a positive trade balance, with exports exceeding imports.

Balance of Trade

While Spain traditionally enjoys a trade surplus, recent global economic trends pose some challenges. Rising energy import costs could put pressure on the positive balance. The government is taking steps to diversify import sources and promote domestic manufacturing to maintain a healthy trade balance.

Infrastructure Development

Spain boasts a well-developed transportation network. The country has over 150,000 kilometers of paved roads, including a comprehensive network of highways and expressways. Spain prioritizes infrastructure development, with ongoing projects in high-speed rail, ports, and renewable energy infrastructure.

Fiscal Policy

Spain employs a progressive fiscal policy. The government uses a combination of spending and taxation to influence economic activity. Government spending focuses on social programs, infrastructure development, and job creation initiatives. Tax revenue is the primary source of government income, with a progressive income tax structure ensuring wealthier citizens contribute a larger share.

Monetary Policy

As a member of the European Union, Spain adheres to the monetary policy set by the European Central Bank (ECB). The ECB primarily uses interest rate adjustments to control inflation and stimulate economic growth across the Eurozone. Spain has limited control over its own monetary policy but can influence economic activity through fiscal policy.

Trade Agreements

Spain benefits from being part of the European Union's extensive trade network. EU trade agreements eliminate or reduce tariffs and trade barriers with many countries, promoting international trade for Spanish businesses. Spain also has bilateral trade agreements with additional countries outside the EU.

Environmental Regulations

Spain has implemented stricter environmental regulations in recent years to address air and water pollution concerns. The government enforces regulations on emissions standards for vehicles and industries. Spain is also actively investing in renewable energy sources like solar and wind power to reduce its reliance on fossil fuels.

Tax System in Spain

Capital gains tax: Capital gains tax rates in Spain vary depending on the asset and the taxpayer's residency status. (i) For residents: Capital gains from the sale of most assets held over one year are taxed at a flat rate of 19%. However, higher rates (up to 28%) may apply for shorter holding periods or specific assets. (ii) For non-residents: A flat rate of 24% typically applies to capital gains from Spanish assets.
Corporate tax rate: The standard corporate tax rate in Spain is 25%. However, lower rates may apply to certain types of businesses or activities.
Sales tax (Value Added Tax - VAT): Spain has a Value Added Tax (VAT) system with different rates depending on the good or service: (i) Standard VAT rate: 21% (applied to most goods and services) (ii) Reduced VAT rate: 10% (applied to specific items like food, beverages, and transportation) (iii) Super-reduced VAT rate: 4% (applied to essential items like basic foodstuffs, medicine, and books),
Property tax (IBI): Property tax in Spain, known as Impuesto sobre Bienes Inmuebles (IBI), is levied by local municipalities and rates vary depending on the property's value and location. Typical rates range from 0.4% to 1.3% of the property's cadastral value.
Payroll tax: Social security contributions in Spain are funded through a payroll tax system.
Tax deductions and credits: Spain offers some tax deductions and credits to reduce tax liability.
Tax compliance: Tax compliance in Spain has improved in recent years, but there are still efforts underway to further strengthen tax administration.
Tax burden: The overall tax burden in Spain is considered moderate compared to some developed countries. The government aims to balance revenue generation with fostering a business-friendly environment.

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