Spanish economy in free fall

Spanish economy in free fallEP

The global weight loss of the Spanish economy seems unstoppable. Low population growth and no improvement in productivity condemn Spain to occupy an increasingly mundane role on the international economic scene. After the economic crisis of 2008, Spain did not stop losing weight as a major world economy. The truth is that when we look to the future, the outlook is very pessimistic for our country. Spain's economy will finish fifteenth in the classification of the World Economic League prepared by the Center for Economic and Business Research (CEBR), after surpassing Mexico in 2023, although this will leave a place for the abundance of Indonesia to occupy the 16th place in the horizon of projections reaching up to 2038.

Spain became the world's eighth-largest economy between 2004 and 2007, but after the financial crisis, another sovereign debt crisis (which almost took over the euro) and the Covid recession, the national economy has shrunk to near irrelevance. (countries with high population growth) and developed countries (performing better in terms of productivity). Spain's growth in the last 20 years has been practically non-existent. But Spain could not come close to the most developed countries in Central and Northern Europe. This is despite the fact that many of them are elderly. For example, two decades ago Germany's GDP per capita was 50% higher than Spain's, today it is 66% higher. The pandemic is the last straw for Spain, as it is the only euro country that has yet to recover to 2019 activity levels.

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Spain is about to leave the group of fifteen most important economies in the world. The isolated data is somewhat anecdotal, but a deeper analysis (in hindsight) reveals the drama the Spanish economy has been experiencing since the outbreak of the financial crisis in 2007. concentrated in non-productive sectors (huge resources were devoted to housing construction during the bubble years) and not used to effect change in the actual growth model.

According to CEBR data, Spain's annual GDP growth rate will slow to an average of 1.6% over the next five years, and then decline to 1.5% annually between 2029 and 2038. The OECD recently published a report revealing Spain's economy. A multilevel decline in per capita GDP over the coming decades. The company's projected data shed light on the problems that have plagued Spain's economy over the years, as well as the problems it may face in the future. The OECD condemned decades of economic stagnation and tax hikes.

The OECD report highlights low productivity or low productivity growth at work. Productivity has grown by only 0.1% annually over the period 2007-2020. The international organization confirms that the period 2007-2020 has lost almost a decade (and three years). One of the obstacles to growth is the low productivity and competitiveness of Spanish companies (highly concentrated in sectors with low added value). A low productivity slab prevents the Spanish economy from moving towards the levels of other developed countries. If the drive to enter the labor market, first women and then migrants, runs out, the country lacks the tools to continue accessing other advanced economies. Low productivity can cause Spain's economy to drop up to ten places in the ranking of GDP per capita (distribution of total GDP by population). UN estimates suggest that Spain's population will begin to decline immediately, and that the drop in population (especially the working-age population) will greatly reduce Spain's potential GDP.

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Beyond the growing criticism of GDP as an indicator (it doesn't take into account pollution, inequality…), the truth is that absolute GDP says very little about the well-being of citizens, although it says a lot about weight. And the importance of that economy on a global scale. Even so, GDP per capita, even if somewhat adjusted to the economic reality of the people, does not look good. The OECD predicts stagnation in Spain's GDP per capita until 2060. Many other countries will overtake Spain in GDP per capita thanks to high expected productivity growth in the coming decades. In five years, four euro countries have surpassed Spain in GDP per capita: Slovenia, Cyprus, Malta and now, Estonia. Coming in next is Lithuania, which fell less than 3% from catching up with Spain in the third quarter. These countries have actively taken advantage of their entry into the EU as barriers to the movement of goods and people disappear. With this they were able to capture a part of the production of Western European countries and a part of the tourists to the Mediterranean.

The author is an economist

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