Oriol Aspachs (Caixabank Research) | The objective has been identified and diagnosed for some time, but it is difficult to achieve. It requires patience, public and private resources, and determination and cooperation between the different institutions and agents involved, precisely because the challenge is enormous.
The Spanish economy is growing dynamically, but it is difficult to sustain in the medium term. To a large extent, it is sustained to a large extent by employment growth. In contrast, productivity growth is rather modest. In order for the increase in economic activity to last over time and be transformed into an improvement in the well-being of all citizens, it is essential to turn this situation around. It is desirable that the growth in economic activity be driven, fundamentally, by improvements in what is produced during the working day: productivity.
The challenge is not new, it is long-standing. Since 1996, GDP has grown by 2.0% on average per year. Since then, the rate of employment growth has been 1.6%. By contrast, the rate at which productivity (measured as GDP in real terms per hour worked) has grown has been 0.7% (hours worked per worker fell). There is still a long way to go. Moreover, over the last few years the economy has been moving in the opposite direction to that desired. Since 2014, GDP has continued to grow at an average annual rate of 2.0%. In contrast, employment has advanced by 1.8% and productivity by 0.4%.
Productivity growth, in addition to decelerating, has remained below that of the EU. Productivity growth in the European economy has averaged 0.8% since 2014. Thus, the Spanish economy, which in 2014 had a productivity level similar to that of the EU as a whole (in terms of GDP measured in purchasing power parity per hour worked), was more than 4% lower in 2023. Catching up is no easy task. If EU productivity continues to grow at the same rate and the Spanish economy quadruples the rate of progress, it will return to the same level as the EU around 2030.
Between 2010 and 2014 productivity in Spain grew by 1.6%, so the challenge is not unattainable, although this was the result of a particular context. There is no magic recipe to increase productivity growth in the long term and there are many levers that need to be activated. I would highlight three areas for action. First, investment, both in physical capital and in human capital, both in quantity and quality. There is ample room for improvement when comparing the figures for the Spanish economy with those of the main developed countries.
Secondly, the size of companies. In Spain, the weight of larger firms is lower than in the main advanced economies. Larger firms are, in general, more productive than smaller ones. This is partly because the most successful firms, which tend to be the most productive, grow more. But larger firms also tend to be more productive because they have critical mass for certain investments and can get more out of them. Thus, their ability to innovate and invest in talent tends to be higher. In the current context, this is particularly relevant.
Finally, sectoral composition. Sectors have different levels of productivity and, moreover, productivity grows at different rates depending on the sector. In Spain, the sectors with lower productivity levels have a greater weight than in the benchmark countries, and this, in fact, has increased in recent years. However, the Spanish economy is also made up of highly productive sectors whose productivity is growing at a good rate, such as manufacturing industry, professional, scientific and technical activities, and information and telecommunications services. All measures that facilitate the development of these sectors will result in higher productivity growth for the Spanish economy as a whole.
The objective has been identified and diagnosed for some time, but it is difficult to achieve. It requires patience, because it takes time. It requires resources, public and private, because transforming the productive fabric is costly and risky, especially in times of disruptive technological change. And it requires determination and cooperation between the different institutions and agents involved, precisely because the challenge is enormous. Many requirements, all difficult to achieve. That is why increasing productivity is the great challenge facing the Spanish economy.
