Spain is a constitutional monarchy and parliamentary democracy. The bicameral legislature, Cortes Generales, is divided into the Senate and the Congress of Deputies. The country is semi-federal, comprising 17 autonomous communities, though their degree of autonomy varies widely. The government is composed by a coalition between PSOE (center-left) and Podemos (far-left) and came into office in November 2019.

The Spanish economy was severely affected by global financial crisis in 2008-09. It began to experience a significant slowdown before other economies as many Spanish banks provided cheap credit to private developers, which could then no repay the loans, causing many banks to risk collapse. During the last years, Spain has been recovering from this recession and starting to have economic stability, being tourism one of the main drivers (12.5% of GDP). Nonetheless, Spain is among the European countries worst affected by coronavirus disease 2019 (COVID-19). The economic recession is likely to be furthered due to the sanitary crisis. The OECD forecasts the country’s GDP to contract by 11.6%, whereas the IMF expects a real GDP contraction of 12.8% in 2020. In addition, it is likely that the eruption of the COVID-19 outbreak in 2020 will cause the economic environment to remain challenging for the coming years. The ensuing recovery will face some legacy obstacles, namely an acutely higher unemployment rate, some destruction of productive capacity and heightened fiscal tensions.

In response to the COVID-19 crisis, the minority coalition government led by Prime Minister Pedro Sánchez adopted a tough anti-contagion plan, entailing the use of enforced social-distancing measures and a national lockdown to prevent non-essential travel. The legal state of alarm ended on 21 June, with travel and other restrictions relaxed. The social-distancing measures included the closure of major consumer-facing services, which, alongside the catastrophic fall in the number of foreign visitors, implies a significant hit to the service-dependent economy. Nonetheless, measures (like compulsory face mask policies, night curfews, local and regional lockdowns, among others) have been reincorporated to control infection cases and avoid the sanitary saturation.  According to the IHME COVID-19 data projection, an increase of daily infections will take place during mid-November, even with the enforced face masks policy in place. The case fatality rate is 2.8% at the time of writing. However, after this peak, it is expected to follow a decreasing trend in the daily infection curve. According to the IMF, Spain is estimated to grow by 7.2% in 2021.

The 7 January 2020 inauguration of the new minority coalition government led by the Spanish Socialist Workers' Party (Partido Socialista Obrero Español: PSOE) removes the near-term risk of a fresh general election. However, its weak congressional position makes its key objectives, including labor market reforms, vulnerable to blockage by other parties. The PSOE has to rely on other parties, including parties in favour of Catalan independence, to pass legislation. Policy differences and increased tensions resulting from the opposition’s criticism of the government’s handling of COVID-19 mean that the coalition is likely to face periods of instability.

The unresolved Catalan autonomy issue will remain a major ongoing challenge for Spain's new government. Since the introduction of Spain’s democratic constitution in 1979, there have been tensions between the tradition of a unitary Spanish state and the desire in some regions for greater autonomy or even outright independence. Demands for greater self-determination have grown, spearheaded by the Basque Country, Catalonia, which emphasise their distinct linguistic and cultural traditions. Catalonia in October 2017 held an unofficial referendum in which it voted for independence, leading the national government to suspend many of its regional powers. While Catalonia’s regional powers have since been restored, the regional government will remain committed to working towards independence. Prison sentences handed down in October 2019 to 12 Catalan politicians for their role in the 2017 referendum sparked a period of increased protest activity in Catalonia, with many demonstrations featuring violence and vandalism. 

Spain is likely to continue experiencing periodic political instability. The traditional two-party system – dominated by the center-right People’s Party (PP) and the center-left Spanish Socialist Workers’ Party (PSOE) – has fragmented since the 2008-09 global financial crisis. The PSOE-led minority government – which replaced the PP in June 2018 after the PP’s implication in a major corruption trial – collapsed after parliament in February 2019 rejected its 2019 budget proposal. Following a collapse in negotiations after the April 2019 snap elections, November 2019 saw Spain’s fourth general election in four years. The PSOE again won the most votes but fell short of a majority and announced a coalition government with its previous ally, far-left Podemos. The coalition still lacked a majority and had to rely on other parties – including Catalan pro-independence parties – to invest a government. It will continue to require other parties’ cooperation to pass legislation, which will likely prove difficult at times when tensions between the central and regional governments – and between the minority government and opposition – are high. Policy differences and increasing political polarisation and frustrations over the government’s handling of coronavirus disease 2019 (COVID-19) mean that the coalition government is likely to face periods of instability.

The growing support for far-right parties such as Vox – a relative newcomer that secured 15.09% of the vote in the November 2019 general elections, becoming the third force in Congress – is another symptom of the growing fragmentation of Spanish politics. Future elections are likely to see problems in forming governments, undermining policymaking.

Since the introduction of Spain’s democratic constitution in 1978, there have been tensions between the tradition of a unitary Spanish state and the desire in some regions for greater autonomy or even outright independence. Demands for greater self-determination have grown, spearheaded by the Basque Country, Catalonia, which emphasize their distinct linguistic and cultural traditions. Catalonia in October 2017 held an unofficial referendum in which it voted for independence, leading the national government to suspend many of its regional powers. While Catalonia’s regional powers have since been restored, the issue remains politically salient in Spain and the regional government will remain committed to working towards independence. Prison sentences handed down in October 2019 to 12 Catalan politicians for their role in the 2017 referendum sparked a period of increased protest activity in Catalonia, with many demonstrations featuring violence and vandalism. The issue is unlikely to be resolved in the coming years, and further periodic disruption is expected.

High-level corruption has been prominent in news headlines in Spain in recent years, with prominent cases reaching senior posts. Most notably, the verdict in the so-called Gürtel trial in May 2018 implicated the then-governing PP, which brought down the government. Successive governments have taken only limited steps to address the problem and opaque links between business and politics are likely to persist in the coming years.

Spain is considered a Full Democracy in the 2020 Democracy Index, developed by The Economist Intelligence Unit (EIU), where the country ranks 18 out of 167 countries scored.

The country ranks 25 at the 2019 Human Development Index developed by the United Nations Development Programme.

The government on 14 March 2020 announced a “state of alarm” in response to the global coronavirus disease 2019 (COVID-19) pandemic, which lasted until June. The process is being gradual and measures are being implemented at different rates depending on the autonomous region and the pandemic situation in each region. Hence, significant operational constraints remain because of the COVID-19 virus pandemic response and the ongoing localized lockdowns or other regulatory restrictions, including on travel to third countries, affecting the crucial tourism sector. Businesses have to comply at short notice with further restrictions complicate the resumption of activity and recovery more broadly, in particular for sectors reliant on business travel or deployment. While cross-border workers and those transporting goods are generally excluded from border restrictions, additional controls at borders are likely to result in operational delays. Disruption is likely throughout the coming months, until the crisis abates. Outside this exceptional period, Spain generally ranks well compared with its regional peers in terms of doing business. However, obtaining licenses, permits, and credit remains problematic.

Liberal policies on land ownership have been a foundation of the country’s construction boom. However, the enforcement of penalties for over-development or construction outside designated zones has increased in recent years, amid complaints that many developments in coastal areas are becoming unsustainable.

Corruption risks are likely to remain elevated, as several public transparency mechanisms have been suspended during the COVID-19 emergency response. Risks of protests are currently limited by the state of alarm but are likely to resurge later in 2020.

Overall, the operating environment presents few challenges for business. Infrastructure has improved rapidly in recent years, though the quality of some highways remains poor and rail travel outside the AVE High-Speed Train network can be slow. Corruption and exposure to organised crime can affect business, particularly in the construction sector. The judiciary is strong and independent but slow. Attempts to reduce the burden of bureaucracy and regulation have had mixed results. Demonstrations and disputes by workers occur sporadically and can be disruptive.

Public transportation throughout the country is generally reliable and in excellent condition. All major cities have metered taxi services. Rail service is reliable but quality and speed varies by region. Public buses are also generally in good condition and inexpensive.

Overall, Spain ranks 30 out of 190 countries scored at the 2020 Doing Business Index by the World Bank and 32 out of 198 at the 2020 Corruption Perception Index by the Transparency International Organization.

Taking into account the international context and the reality of the countries in which FCC is present, the security environment in Spain is considered to be, despite the aspects to be explained below, stable and conducive to business activity.

Petty crime is common and levels are rising in the major cities, with a potential for a further increase in acquisitive crime as the adverse economic impact of coronavirus (COVID-19) places further pressure on low-income households. Large-scale Islamist extremist attacks in March 2004 targeted the capital Madrid's transport infrastructure. Vehicle ramming attacks in Catalonia in August 2017 killed 15 people, with several small-scale incidents having occurred since. Such incidents demonstrate  a persistent threat, though it remains lower than in France or the UK.

Violent crime rates in Spain remain generally low, although the total number of reported crimes rose by 3.3% in 2019 compared to 2018. Barcelona records higher crime rates across almost all categories, with approximately 40% more street robberies than the more populous capital, Madrid. Other regions with above-average crime rates include the Balearic Islands, Malaga, and Madrid. Petty crime is likely in areas frequented by tourists and on public transport. Organized crime mainly relates to international drug trafficking, money laundering, human trafficking for prostitution, and property crime. Criminal groups are likely to continue to exert an influence over municipal politics.

Risks of social unrest, especially in Madrid and Barcelona, are likely to increase during the second half of 2020 as the economy suffers an expected major contraction amid the COVID-19 pandemic. Catalan independence-related issues are likely to prompt disruptive protests mainly in Barcelona and other Catalan cities, and sporadically in central Madrid. Unionist marches with a far-right presence are likely to turn violent, although fatalities are unlikely. Public meetings held by the far-right Vox party, are likely to provoke violent protests by radical anti-fascist groups in Andalusia, Catalonia, and the Basque Country.

Regarding Islamic terrorism, the August 2017 vehicle-impact attacks in Barcelona and Cambrils, indicated a significant degree of coordination and capability among Islamist militants and a wider jihadist support network. Madrid and Barcelona remain at particular risk. An attack would most likely be launched by lone actors with low capabilities, or by small terrorist cells, which are usually better organized.

Historically, Basque separatist terrorist group ETA presented the main terrorist threat, especially in the Basque Country and neighbouring regions. However, the group in 2010 called a ceasefire, in 2014 announced a process of decommissioning its arms and in 2018 officially disbanded, which has significantly reduced the threat of nationalist/separatist attacks. ETA appears extremely unlikely to resume operations in the foreseeable future. Nonethless Catalonian independence issue is still present. The arrest of seven Catalan separatists in September 2019, accused of planning explosives attacks on public buildings in Barcelona, suggests a degree of emerging risk in Catalonia.

Inter-state war risks will remain low in Spain thanks to the country's friendly diplomatic and economic relations with most European countries and many other states around the globe. Spain is closely integrated into the European Union, NATO, and other international organizations. Diplomatic rifts with the United Kingdom over the sovereignty of Gibraltar during ongoing Brexit negotiations, minor occasional disagreements with Morocco over the Spanish enclaves of Ceuta and Melilla, and disputes with Portugal over the remote Savage Islands and the Olivenza region are highly unlikely to lead to armed conflict.

Overall, Spain ranks 38 out of 163 within the 2020 Global Peace Index by the Institute for Economics and Peace.

Spain is currently among the most cyber-attacked countries in the world. According to Kaspersky cyber threat map, it is ranked as the 12th most attacked country in the world.

No vaccinations are required to enter the country.

Spain ranks 15 out of 195 within the 2019 Global Health Security Index, a project of the Nuclear Threat Initiative (NTI) and the Johns Hopkins Center for Health Security (JHU), developed with The Economist Intelligence Unit (EIU).

Spain is divided between three climatic zones. The north (Galicia, Cantabria, Basque country) has an oceanic climate characterized by regular rain and mild temperatures throughout the year; summers are usually not very hot. The center of the country (Castile, León, La Mancha, Aragon) experiences a continental climate: winters are cold and dry and summers very hot. Along the Mediterranean coast (from Catalonia to Andalucía), winters are mild and summers are often scorching, particularly in Andalucía. Rain is most common in the country in the spring and autumn months.

Spain is located in an active seismic zone and earthquakes can impact the country, such as the 5.1-magnitude earthquake that hit Lorca (southeast) on May 12, 2011, leaving a dozen people dead. The Canary Islands (especially El Hierro Island) experience the seismic activity as well. One of the most recent earthquakes occurred in January 2016, when a 6.1-magnitude quake was recorded off of the coast of Málaga. The worst-hit area was Spain's North African enclave of Melilla, where around 26 people suffered light injuries.

From time to time, Spain also experiences summer forest fires, heavy rains, and flooding. Severe flooding occurred in Costa del Sol in December 2016, resulting in at least one death. Alicante experienced record amounts of rain in March 2017. According to media reports, the region suffered its worst amount of flooding in 20 years after it was hit by half the average annual rainfall in just one day.

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