Once industry had adjusted to market conditions and the macroeconomic imbalances had been reduced, a phase of economic growth came about which was principally due to a high increase in investment demand. This increase in investment responded to an improvement in business expectations and the strong need to capitalize the Spanish economy to deal with greater foreign competition after accession to the EEC.

During the period from 1986 to 1988 (both inclusive), the gross formation of capital increased to an annual average rate of 14.1% in real terms, that is to the double of the average growth of investment in the OECD countries during this period. The gross formation of capital that in 1985 was about 19% of the GDP, grew to around 26% of GDP in 1989. This grew of demand originated an increase of GDP, in real terms, of 4.8%, annual rate.

Spain's production increased in just four years almost 20% in real terms, getting closer to the average European Community. Spanish income per capita, which in 1985 was 71.8% of the average income per capita of the EC, shot up to represent 75.9% in 1989. In four years it had improved 4 percentage points the real convergence with Europe.

This four-year period of economic expansion generated a great deal of employment, due not only to greater demand for labour inherent in increased production, but also to the flexibilizing measures in the labour market. During this expansive cycle, close to one and a half million jobs were created, equal to more than one thousand jobs per day. In spite of the increase in the rate of activity by only 0.9%, unemployment decreased by 4.2%, until arrive to 16.9% of active population in the 4th quarter of the year.

The economic growth, Europe's most rapid during the aforementioned years, has also been compatible with the reduction of some imbalances as well as the above mentioned reduction in umemployment. The public deficit decreased and, at the same time, the rate of inflation went down.

     ========================================
     DEMAND AND PRODUCTION 
     (annual average increase rates)   (%)
     ----------------------------------------
                      1986-1989    1990-1992
     ----------------------------------------
     Private
     consumption         4.9          2.3
     ---------------------------------------
     Government
     consumption         6.6          2.9
     ---------------------------------------
     Gross capital
     formation          14.1          1.9
     ---------------------------------------
     Exports
     (goods and 
      services)          3.9          5.2
     ---------------------------------------
     Imports
     (goods and
      services)         17.0          7.8
     ---------------------------------------
     Employment          3.1          0.3
     ---------------------------------------
     GDP                 4.8          2.4
     =======================================

     Average Growth Rates in Real Terms.
     Source: Instituto Nacional de Estadistica (INE)