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Successfully investing in Spain

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last updated on 17 June 2022 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Spain?

The recovery of the Spanish economy showed good pace in the fourth quarter of 2021, but the annual GDP was significantly below the level of 2019, mainly due to weak performance in the first half of the year.
  
The restrictions imposed on Spain and the rest of Europe to contain the Omicron variant meant that the economy started weakly in 2022, mostly due to the services sector such as tourism, which saw job losses at the beginning of the year. Even though the indicators in February pointed to a recovery, the panorama changed significantly with the outbreak of war in Ukraine, as in many other countries. Commodities, especially oil, natural gas and grain, became even more expensive. The increases are most noticeable in end-user prices for energy products and for certain foodstuffs, which has increased the loss of consumer purchasing power and the deterioration of companies' profit margins, even though the government has introduced a direct discount on petrol prices at petrol stations until September 2022 and is trying to curb electricity prices.
 
The Spanish government foresees growth of 4.3 per cent in 2022, assuming that the unemployment rate will be below 13 per cent at around 12.8 per cent..

 

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

The investment climate is still generally positive, although the current left-left coalition government cannot be called directly business-friendly.
 
However, legislation is mostly predictable and labour law is less complicated compared to other European countries such as France, Germany or Italy. The current government has abandoned, at least for the time being and because of the Corona crisis, its initial intention to introduce certain measures to make redundancies due to operational reasons more difficult.
 
In these times of soaring energy costs, the renewable energy sector, which is supported by Spanish politics offers immense potential, as does the IT and communications sector, which is boosted by highly trained students and low wage levels.
  
In this context and as before, it is important not to lose sight of topics such as smart cities and micro-mobility, as Spain is very well positioned in the digital sector and the pandemic has proven to be a catalyst for general and industrial digitalisation.
  
The most important economic sector will continue to be tourism, which accounts for a large part of the gross domestic product, and which plays a particularly significant role in post-pandemic times due to the accumulated demand of many travellers.

 

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 automotive and automotive supplier industry is certainly one of the sectors that has been hit hardest in Spain in recent years. There are therefore ideal conditions for the production of electric cars, many well-trained young people as well as already existing industrial infrastructures. Since sustainability is especially important in the current political programme of the left-left government, possibilities of state support are envisaged. For the economy, the production of electric cars in Spain would clearly have a positive effect, especially in the regions where suppliers and car companies have cut back or stopped their production. This fundamental importance explains why the Spanish government has earmarked €2,975 million in 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"). It is expected that this "PERTE" could create a total of 140,000 jobs. Its contribution to Spanish GDP would be between 1 per cent and 1.7 per cent, with up to 250,000 newly registered electric vehicles.

 

How do you see Spain developing?

The most important industry for Spain, tourism, has been hit hard and right at its heart by the pandemic and the travel restrictions imposed. The lifting of restrictions has already led to a growth in demand within Spain, which is now also noticeable in travel bookings from abroad. Assuming that the pandemic takes a break in the summer of 2022, Spain's tourism industry will certainly reach revenues above pre-pandemic levels.
  
Renewable energies will play an increasingly significant role in Spain in the future, also in view of the high energy prices, which will be driven up further by the war with Russia. In the event of exacerbation of the European gas supply crisis, Spain could play a vital role in the coming months as a distributor to Europe of the liquid gas unloaded by ship in Spanish ports, thanks to its many regasification plants and the widespread gas pipeline network.
  
However, Spain is particularly exposed to the ECB's new interest rate policy because of its high public and private debt. On the other hand, the positive effects of the massive "Next Generation" fund approved by the EU and similar European aid packages should be felt in the Spanish economy as early as 2022 and even more clearly in 2023.
  
There is widespread fear among experts in Spain that once the moratorium, which is still in force until 30 June 2022, on the legal obligation to file for bankruptcy in insolvency cases is lifted, a whole "wave" of insolvency petitions will hit the Spanish insolvency courts. This risk has increased in recent months due to the rapid and negative development of the geopolitical environment, as two of the most important sectors of the Spanish economy - tourism and the car industry - are particularly exposed to the looming risks.

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