Spain begins another year of very positive expectations, in which its economy will be in a position to grow “above 2.4%”, according to Minister Carlos Body estimated this week. This success, however, will once again be insufficient to correct the great deficiency that our country has had for decades compared to its surrounding countries: the comparatively low wealth of its households. In total, six internal factors can be identified – now excluding the very uncertain international context – that will weigh down the Spanish economy with a special impact in 2025.
Three of them, low productivity per hour and worker, the housing crisis and the inability to reduce the already very high public debt will continue to directly undermine household wealth. This variable, measured in terms of GDP per capita, presents a completely anomalous behavior that keeps it chronically below the European Union average. It is the result of the almost anecdotal growth, of 0.1%, that the average wealth of Spaniards has experienced since 2019, according to Eurostat.
In parallel, the damage that threatens, in multiple areas, the reduction of the working day that Labor already wants to bring to Congress in February, despite its clashes with the Economy or the new extension of the State Budget, which maintains to autonomies and city councils without a clear deficit and debt path to adhere to.
The common regime autonomies also have before them an already unavoidable reform of their financing system that must square the circle, when combined with the unique Catalan financing that the PSC promised to ERC last summer.
No one can deny that the rocket that our country’s economy has become, according to President Sánchez, will continue to find its fuel in the rise of tourism, the boost in exports while waiting for what happens with the trade war that Trump trigger and public spending.
But None of these factors can prevent per capita wealth from continuing to deteriorate.. The already entrenched gap between supply and demand for housing for purchase or rent will contribute decisively to this. Purchase prices rose again at a rate of more than 10% in 2024, which increases to around eight the number of full annual salaries that citizens have to allocate, on average, to purchasing a home.
Less noticeable, but equally damaging in the future, is the evolution of the Administrations’ debt. Public liabilities will be reduced between 2025 and 2028 slightly below the barrier of 100% of GDP, according to the forecasts of the Independent Authority for Fiscal Responsibility (AIReF), largely due to the purely statistical effect caused by the growth of the denominator of this ratio, GDP. But AIRef itself warns that there will be rebounds in the absence of any public spending adjustment plan, which will require greater tax increases and will take away more wealth from the taxpayer.
Decades of low productivity
However, if Spain has a vitally important challenge, inherited from previous decades and fully valid in the future, it is the lack of productivity. This indicator measures performance per worker and is conditioned by factors such as the composition of the labor market, the size of companies, investment or the ability to absorb technology and adapt to changes.
For the next academic year, the Funcas forecast panel, which includes the consensus of around twenty private analysis houses, as well as the main public and international institutions, still shows a slight advance of 0.6%, which moderates from 0. 8% predicted for the end of last 2024.
“Spanish productivity performance has fallen below the OECD average over recent decades, which has important implications for real wage growth and overall living standards. Indeed, real wage growth in Spain has remained close to zero since the 1990sand even turned slightly negative in the 2010s, failing to keep pace with already weak productivity growth,” explains the Paris-based institution.
In the last decade (2013-2023), important differences in productivity have been observed within the Twenty-seven countries that make up the Union, where Ireland stands out. On the scale included by the General Council of Economists (CGE), the stagnation of Spain is worrying, which remains in the middle of the table, below the average for all countries and with a good part of the economies once in the low zone that are starting to gain traction.
Bulgaria, Slovakia, Ireland, Latvia, Malta, Poland and Romania are the countries in which productivity increases most intensely. On the contrary, five Member States (Spain, France, Greece, Italy and Luxembourg) have experienced variations in their real productivity below half the average value. If a decade ago Spain had higher labor productivity, today it is somewhat lower. This means that it has taken a step back in this aspect.
The Economists’ analysis indicates that only five regions (Basque Country, Community of Madrid, Foral Community of Navarra, La Rioja and Catalonia) reach productivity values equal to or higher than the community average during the last decade. This gap with the European Union also causes a wealth gap that has widened.
In any case, The paradox of this indicator is always its behavior in times of crisis. When the Spanish economy has gone into a tailspin and there have been layoffs, especially in the financial crisis, productivity per employee has improved. The (un)control of the hours worked by the active population also makes the calculation difficult, a nuance to take into account. If productivity improves in a crisis, is there a change in the composition of employment or more investment? No, simply the denominator of GDP usually falls less than employment does and productivity has an ‘improvement’ phase, when the reality is a decline in activity.
The Ministry of Economy led by Carlos Corpo wants to get to work and has created a group of experts that will begin working this year. One of the tasks of the new Productivity Council, dependent on the Ministry of Economy, will be to produce reports and analyzes to improve the country’s competitiveness, undoubtedly one of the challenges of the course.
Investment compromises growth
The productive investment that each worker can access marks the potential performance of human capitalthe workers, thanks to physical resources, such as machinery, or intangible resources, such as computer programs. This indicator measures the money used in these types of resources, excluding other types of unproductive investments (that do not improve the capacity to produce more) such as those allocated to housing.
In this sense, companies have allocated a good part of their resources in the form of surpluses to pay the debt hangover after the financial crisis, leaving aside investment and limiting the country’s potential growth. In exchange, they have paid debt worth 25% of GDP after the pandemic.
“A chronic investment deficit raises doubts about the prospects for recovery of productivity, the Achilles heel of the Spanish economy,” explains Funcas. “The sluggishness that business investment has been persistently showing in our country represents a downward risk for the GDP growth path,” noted the Bank of Spain in its latest quarterly report.
Although the technicians of the supervisor led by José Luis Escrivá hope for an improvement in productivity that will allow us to definitively recover pre-pandemic levels, they assure that uncertainty overshadows this indicator. In this sense, An improvement in investment would also improve productivity performance.
Business size matters
The recipes to correct this endemic evil that Spain is suffering are also provided by the International Monetary Fund (IMF): larger companies capable of going beyond bordersand the atomization of the Spanish business fabric with a vast majority of SMEs is a well-known problem.
The organization led by Kristalina Gueorguieva, with data in hand, asks the European Commission to deepen the community single market, as Mario Draghi insisted in his September report. “Individual countries are too small to meet our challenges”said the Italian in a document that should be called to improve the competitiveness of the continent and that also serves in the Spanish case.
Large companies benefit from increasing returns to scale that favor their greater productivity and, on average, they are more efficient. Large and medium-sized companies beat small ones and, especially, micro-SMEs. While the country’s leading companies (the top 5% in Spain) improve their productivity at the rate of the OECD (2%) annually, the laggards do not compete with the same engine.
This rule is complied with except for certain niches of business services where medium-sized companies take advantage of competitive advantages, intellectual property or intensive use of ICT, as cited by the Círculo de Empresarios from a report prepared by the OECD. In general, the weight of services associated with tourism and the decline of the industry penalize the added value generated by employees.
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