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Successfully investing in Spain

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last updated on 16 June 2023 | reading time approx. 5 minutes

 

 

 

How do you assess the current economic situation in Spain?

The recovery of the Spanish economy in the final months of 2022 was stronger than expected, even though growth for the year as a whole was lower than in 2020 and 2021. It should not be forgotten however that these two years in particular were marked by the normalisation of the economy following the pandemic.
 
Spain is one of the countries that suffered greatly economically due to the pandemic and has been slow to re­co­ver. All signs point to the country finally being on track in 2023 to surpass the economic activity of 2019, due in part to the positive development of the tourism and service industries, both sectors on which the pandemic had a particularly negative impact. 

The outbreak of war in Ukraine had a sharp impact on commodity and energy prices in Spain as well. In par­ti­cu­lar oil, natural gas and grain, reached never before seen prices, which had a particularly marked impact on the end consumer prices for energy products and for certain foodstuffs. Consumers' loss of purchasing power was clearly felt, even though the government introduced, among other measures, a long-term direct discount on fuel prices at petrol stations. In early 2023, energy prices seem to be settling down a bit and this is expected to be a long-term trend. 

The International Economic Fund (IMF) has raised its growth forecast for Spain to 1.5 percent, very close to the 1.7 percent economic growth predicted by the Organisation for Economic Cooperation and Development (OECD). The Spanish Central Bank forecasts growth of 1.6 percent, while the Spanish government expects eco­no­mic growth of 2.1 percent in 2023. According to predictions by the International Economic Fund, Spain is one of the European countries that will grow the most in 2023. 

Inflation: The IMF predicts that inflation in Spain will fall to an average of 4.3 percent, which will then fall fur­ther to 3.2 percent in 2024. 

Unemployment: Despite growing numbers of people registering for Spanish social security, Spain's un­em­ploy­ment rate of 13 percent (2022) is one of the highest in Europe, with a rate of 29.6 percent among the under-25s alone. The IMF forecasts an unemployment rate of 12.6 percent for Spain in 2023 and 12.4 percent for 2024.

 

How would you describe the investment climate in Spain? Which sectors offer the greates potential?

According to the Spanish foreign trade institute ICEX, the forecasts for investments in Spain in 2023 are quite positive, but reflect the uncertainty of the international, political and economic scene, especially since the cur­rent left-left coalition cannot be called business-friendly. However, legislation is largely predictable and labour law is less complicated compared to other European coun­tries such as France, Germany or Italy.

In 2022, some changes were introduced in labour law. For example, both women and men now have the same right to parental leave when children are born, which is intended to prevent discrimination when filling jobs. Fur­thermore, other measures such as communication channels for whistleblowers or transparency reporting were introduced to ensure equal treatment of women and men above a certain company size. 

One of the most important changes in the last year is certainly the significant limitation of fixed-term contracts, e.g. for project-related recruitment to promote permanent contracts. In addition, the minimum wage has been adjusted several times in recent years and is now (2023) 1,080 euros gross per month. 

Industries: There is still great potential in the renewable energy sector, which is supported by Spanish policy; also in the IT and communications sector, which is helped by very well-trained students and low wage levels. The Spanish government's goal is clearly a more sustainable and digital Spain. The pandemic has proven to be a catalyst for general and industrial digitalisation. Topics such as smart cities and micro-mobility continue to open interesting opportunities.

The most important economic sector will continue to be tourism, which accounts for a large part of the gross domestic product and plays a particularly important role in post-pandemic times due to the pent-up demand of many travellers. The renewable energy sector will also play an increasingly important role in terms of Europe-wide energy demand.
 

What challenges do German companies face during their business ventures into Spain?

The decisive factor for success or failure is still primarily the selection of employees and, more specifically, the managers of the Spanish branches. Furthermore, control of the branch in Spain is important in order to avoid unpleasant surprises, which come to light only with the passing of time. 

In terms of foreign language skills, Spaniards have improved significantly in recent years, but are not yet at the level of other European countries. Other challenges also arise from further political developments in Spain, as well as from the developments in raw material and energy prices.

 

Spain wants to become a central location for the production of electric cars in Europe. What opportunities does this create for the economy?

The semiconductor crisis that started in 2020 as a result of the pandemic and the promotion of new car sales after a sharp drop in sales as a result of the semiconductor crisis and the resulting reduced production are two of the biggest challenges for the Spanish automotive sector in 2023. 

The significant restriction of inner-city traffic to environmentally friendly cars has also had a major impact on electric car sales, which showed an increase of 22 percent in 2022. Nevertheless, Spain is lagging far behind in the introduction of electric cars, which is also largely due to the reduced production of passenger cars due to the semiconductor crisis and the resulting waiting time of up to one year for new cars in some cases. In ad­di­tion, there is a poor infrastructure of charging stations in Spain.

As sustainability is very important in the current political programme of the left-left government and the auto­mo­tive sector has a major impact on employment figures in Spain, state financial support for the production of electric cars will continue to be provided. 

For the economy, the continued production of electric cars in Spain clearly has a positive effect, especially in the regions where suppliers and car companies had cut back or ended their production. Both the Spanish go­vern­ment on the one hand and the Spanish association of car and truck manufacturers on the other have each presented a plan. The focus of the association is primarily on improvements in the plans to promote demand, specific changes in the taxation of electric cars and support for charging infrastructure. The association clearly sees the state as having a duty in this regard.

For its part, the Spanish government provides funding for the industrial part of the so-called “Strategic Project for the Recovery and Economic Transformation of the Electric Car” (“PERTE del Vehículo Eléctrico y Conectado - PERTE VEC”), provides financial support to owners of electric cars for the installation of charging equipment and obliges petrol stations – depending on size and region – to install charging stations since the end of 2022.
 

How do you see Spain developing?

As correctly predicted last year, Spain's most important industry, tourism, was already above pre-pandemic le­vels in 2022 with record revenues. Renewable energies will continue to play a growing role in the future, among other things in view of the ongoing war between Russia and Ukraine, and Europe's related search for inde­pen­dence from foreign energy sources. In combination with clever tax and legal policies, this could attract more com­panies from other European and international countries.

Spain is particularly exposed to the ECB's interest rate policy due to high public and private debt. On the other hand, the positive effects of the massive EU-approved “Next Generation” fund and similar European aid pa­cka­ges were already felt in the Spanish economy in 2022, which is expected to continue in the coming years. 
 
Even though, as mentioned, Spain is one of the countries with the highest growth, the number of business start-ups in 2022 decreased by 2.1 percent as expected, and the number of business dissolutions and closures reached the highest levels since 1995, according to the Spanish equivalent of the Federal Statistical Office. Trade was the sector with the greatest declines, followed by construction and the real estate sector. The de­es­ca­la­tion of the consumer price index will continue slowly and inflation will continue to fall until 2024.

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