Spain’s Economic Transformation: 1959-2007 Cycles

Posted on Apr 19, 2025 in Economy

Spain’s Economy: 1959-1974 Stabilization & Growth

1959-1967: Stabilization Plan and Initial Growth

  • Starting with a stabilization plan, this period saw growth exacerbate the imbalance where Demand (D) exceeded Supply (S).
  • Exports experienced strong expansion thanks to the new Peseta (PTA) exchange rate and accelerated growth in European economies.
  • Rising prices (inflation) and the external deficit increased.
  • In 1967, the PTA had to be devalued. Measures included freezing salaries and reducing rates.
  • GDP Growth: 10.5%.

1968-1971: Development Policy and Slower Growth

  • The regional development policy (Five-Year Plan 1964-1975) yielded disappointing results.
  • Price controls were implemented due to intense demand pressure (D>S).
  • Characterized by minor growth and relative price stability.
  • GDP Growth: 5%.

1972-1974: High Growth and Inflation

  • Strong growth (8% GDP) accompanied by high inflation.

Period Results (1959-1974):

  • Average growth of 7%, primarily driven by consumption rather than investment.
  • Structural transformation in Gross Value Added (GVA), with strong industrial growth rates.

Economic Crisis & Adjustment: Spain 1974-1979

  • 1973: Rising prices. Growth in consumption and investment slowed, while exports decreased. Efforts were needed to restructure the foreign sector, making reduced consumption beneficial. Interest rates increased. Fiscal policy was non-expansionary. Unemployment rose, and the trade deficit shrank relative to GDP. The balance relied on tourism or income transfers to reduce the deficit. Compensatory policies were in place until 1974.
  • 1975: Attempt at rationalization through restrictive policies.
  • 1976-1977: Permissive policies. The new government faced 40% inflation and a strained external sector. Action was taken through the Moncloa Pacts.

Period Results (1974-1979):

  • Average inflation of 25%.
  • The merchandise trade balance showed a deficit of 4-5% requiring financing.
  • GDP growth slowed significantly due to the economic downturn.

Stagnation & Deficits: Spain’s Economy 1979-1985

  • New deficit imbalance: Public spending grew faster than revenue.
  • Prices: Average increase (inflation) of 14%.
  • Significant slump in investment.
  • Job destruction: Approximately 2 million jobs were lost between 1975-1985.

Recovery & EU Integration: Spain 1986-1992

  • Strong recovery with GDP growth of 3-4%.
  • Rapid growth period based on internal demand.
  • Employment increased, disposable income rose, boosting consumption.

Short Crisis & Devaluation: Spain 1992-1995

  • A short but intense crisis. 1990 marked an inflection point between contraction and expansion.
  • Investment suffered a very intense fall.
  • Welfare state expansion mirrored public spending growth, contributing to worsening productivity and the public deficit.
  • The public deficit reached a historic maximum of -7% of GDP in 1995.
  • Domestic demand contracted, reducing imports and allowing exports to increase, aided by Peseta (PTA) devaluations. The PTA was devalued 3 times up to 1995.
  • The public deficit generated inflation. Increased public spending pushed up aggregate demand, leading to price increases. This deficit-driven inflation led to rising interest rates.