Spain | Investment needs reforms to prosper

Summary

The Spanish economy continues to grow, and has even accelerated in recent months. However, it does so with investment flagging, despite the support provided by the steady flow of resources from Europe.

Key points

• Key points:
• According to the National Institute of Statistics, investment fell by 1.6% quarter-on-quarter in the fourth quarter of 2023. Overall, during the second half of 2023, it declined by 2.2% and remains 5.5% below the local pre-pandemic peak.
• The situation does not seem to be improving. The corporate credit balance continues to decline by more than 4% with data through to January, with new financing flows remaining relatively constant from a year ago and below pre-pandemic levels.
• Part of this behavior can be explained by factors whose impact will gradually reverse. For example, after significant increases in recent years, both the cost of money and the cost of electricity show turning points and significant decreases, respectively.
• However, most of the evidence points to structural factors that are unlikely to disappear in the coming months. One of them is the poor performance of the European economy.
• In Spain, regulation is having a negative effect. Another supply-side constraint that is affecting investment is the shortage of skilled human capital. In addition, the funds associated with the Recovery, Transformation and Resilience Plan (PRTR) are not having the desired impact. Finally, and perhaps most importantly, there is uncertainty surrounding economic policy.

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