Spain | Productivity Pact

Summary

Competitiveness improved during the pandemic due to lower margins, and again during the recovery due to lower relative wage growth. In practice, this has meant an implicit ‘income pact.’ In addition to reaching an agreement on how this cost-sharing will continue, it would be useful to think about a ‘productivity pact'.

Key points

• Key points:
• From 2020 to 2022, the Spanish economy continued to reduce its indebtedness facing the rest of the world, generating current account surpluses yet without reducing investment or employment. Part of the success is due to a gain in competitiveness.
• With the lockdown and freezing of activity in many services, prices in sectors such as hospitality and accommodation fell significantly, while employment remained stable. The improvement in competitiveness was achieved through lower business margins.
• Afterwards, at the recovery stage, the edge over other countries was retained, partly thanks to the containment of domestic costs compared to the rest of the EMU.
• Spanish companies have found alternative sources to offset the increase in costs due to the increase in energy prices. Wages, for example, grew less than in competitor economies.
• Beyond being able to reach an express agreement on how the costs of the crisis will continue to be shared, it would be more useful to think about how constant productivity gains can be generated, thus ensuring more competitive businesses that can offer better conditions to employees.

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