Spain | The investment gap and the lack of convergence with the EU

Summary

Investment has yet to return to pre-COVID-19 levels, unlike other GDP components. Whereas real GDP in the third quarter of 2023 was 2.1 p.p. above its pre-crisis level, investment was 2.9 p.p. below.

Key points

• Key points:
• The lower share of investment in GDP is in itself a source of great concern, but all the more so considering that it is far below levels prior to the 2008 international financial crisis and not aligned with the overall upward trend for the European Union (EU).
• Stripping out inflation impacts, quarterly investment per working-age person in Spain has fallen sharply, to EUR 2,217 in the third quarter of 2023; i.e. a 5.3% drop since the beginning of 2002, compared to a 35.6% increase since then for the EU27, to EUR 3,282, i.e. 48.0% higher than in Spain.
• Myriad factors could explain the lower growth of investment per working-age person in Spain compared to the EU. Examples include deleveraging by Spanish companies and possible restrictions to financing and/or higher borrowing costs.
• Others include the COVID-19 crisis, bottlenecks and disruptions in global production chains, or upheavals in energy markets, which are more recent and transitory, as well as common, factors, but they do not explain what is now a nearly two-decade-long gap.
• To name a few more factors, there are increased public expenditure and fiscal pressure and, related to this, the fact that Spain was the EU's second worst relative performer from 1996 to 2022, behind Cyprus and just ahead of Hungary, in terms of institutional and regulatory quality, government effectiveness, control of corruption, legal security and rule of law (or principle of legality), according to the World Bank's Worldwide Governance Indicators.

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