Spain | The slow recovery in investment

Summary

In 1Q23, Spain recovered the GDP level of 4Q19, just before the COVID-19 crisis. The reasons for taking longer to do so than most European Union (EU27) countries are several, but an important one in terms of its implications is the slow recovery in investment.

Key points

• Key points:
• In 1Q23, both private consumption and investment were approximately 5 points below their pre-pandemic levels. In contrast, government expenditure and, above all, exports were well above.
• Furthermore, Spain does not compare well with the rest of the EU27 countries, given that, with respect to the 2019 average, only Ireland and Bulgaria have had a worse investment performance up to 1Q23.
• The disappointing performance of investment in Spain is compounded by the low starting levels, which have been dragging on for more than a decade, when the weight of investment in GDP plummeted with the Great Recession.
• Taking data from 1960 to the present for a broad sample of countries at different levels of development, we find that, in the long run, increases of 5 percentage points in the investment-to-GDP ratio result in increases in per capita growth of 1.5 points.
• The balance from 2020 to 2022 is that private non-residential investment has grown in cumulative terms by 14.5% below the average of the last three decades, and that 78% of this lower growth is explained by supply factors compared to 22% for demand factors.

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