How did the changes in Europe and the world between 1488 and 1588 result in the decline of Spain and Portugal?

The Portuguese and Spaniards were the trailblazers of overseas exploration in the late 1400s, with the Portuguese Bartolomeu Dias clearing the southern tip of Africa and Vasco Da Gama reaching India, and the Spanish-sponsored Christopher Columbus crossing the Atlantic to North America. With time, however, other European powers began to catch up. Furthermore, while the American colonies provided a substantial economic boost in the short term, the benefits declined over time. Diseases decimated the local populations that had been providing slave labor. In Spain, the New Laws (or New Regulations) of 1542 placed limits on the encomienda system and the unbridled abuses and exploitation of the native population in New Spain. The American colonies became another source of goods, which contributed to the decline in exports from Spain. That decline of Spanish exports led to a drop in the influx of precious metals, particularly silver. Despite this, most historians still consider Spain to have been the strongest European state heading into the 1600s. In the first half of the seventeenth century, Spain encountered more serious difficulties, with the loss of the United Provinces in the Netherlands in 1609 and various rebellions from within its domains. As for Portugal, in addition to its South American possessions, it had established a strong trade presence in Asia. The Portuguese had a virtual monopoly on the Spice Islands until the Dutch arrived just before 1600. Portuguese decline came owing largely to the loss of its independence to Spain in 1580. The king of Spain became the king of Portugal until 1668.
Religious developments, namely the Protestant Reformation and division of Europe into a predominantly Catholic South and predominantly Protestant North, certainly impacted both Spain and Portugal. Catholicism no longer had a monopoly on Western Europe. Anglican England, hostile to the papacy and those they pejoratively called "papists" from the time of Henry VIII's Act of Supremacy (1534), developed politically, militarily, and on the high seas. The English raided Spanish commercial interests and became Spain's main rival. In an attempt to win back Protestant England for the papacy, the seemingly invincible Spanish Armada set sail across the English Channel in 1588, but the English navy triumphed, signaling a major shift in power in Europe.