Spain: Not Utopia, but Still a Good Investment
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December 03, 2023
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First published in El Confidencial,1 Spanish newspaper, on December 3, 2023. The entire article is available at https://blogs.elconfidencial.com/mercados/tribuna-mercados/2023-12-03/espana-es-un-buen-pais-para-invertir_3784278/
For anyone reading the major Spanish economic newspapers lately, the news about companies with decent prospects or even positive economic results stands out. BlackRock, for example—the world’s largest fund—has decided to make its real estate debut in Spain. IAG has announced earnings forecast of €1.5 billion in Spain from 2024 onwards, and Iberdrola beat its profit targets and boosted dividends. Enel maintains a €9 billion investment portfolio for Endesa in Spain, whilst Spanish banks lead Europe in profitability. The country is amongst the 12 in the world that, just seven years from now, will include the most renewables in its energy production profile.
Amidst the constant noise of political confrontation, the latest forecasts from the European Commission affirm that something unexpected is happening: Spain closed the year with higher growth than Germany, France, or Italy. The country’s 2.4% increase in GDP in 2023 is quadruple the eurozone countries’ average of 0.6%, and Brussels indicates an increase of 1.7% for 2024 compared with the eurozone average of 1.2%. Forecasts for 2025 predict a continuation of this trend, with improvement of 2% in Spain compared with the eurozone's 1.6%. Despite diminishing momentum, which should not be overlooked, this positive trend coincides with the outlook of many companies.
Key questions now include whether with this growth and the Spanish economy’s external competitiveness can be maintained or even improved, and whether Spain can sustain the momentum of its labour market. Clouds on the horizon—thanks to today’s complex international situation, and to the Spanish government’s internal politicking and its influence on public accounts—make for increasing doubts. With the state budget still undetermined after Moncloa spent five months forming a government, the European Commission has warned that Spain’s fiscal situation “is very difficult” and has demanded the imposition of “a credible medium-term fiscal strategy” to reduce the deficit and public debt.
The various agreements that President Pedro Sánchez reached with the political parties that have supported him could come with high fiscal costs, particularly given the debt forgiveness for the autonomous communities—an agreement whose details remain unknown. Some analysts, such as Fundación de Estudios de Economía Aplicada (“Fedea”), warn about a lack of financial discipline, pointing out the risk of certain autonomous communities believing they have licence to systematically overspend because the state will rescue them one way or another, at no cost to them. Tax increases are another issue of concern in the business community, where rising business costs could halt economic projects. Adding such uncertainty to the tense state of international affairs could leave risk-averse entrepreneurs too nervous to invest. Repsol’s warning that an extended tax on energy companies could endanger its investments in Spain is a case in point: the energy company has paid €10.89 billion in taxes through September 2023, making it the highest tax-paying IBEX company.
The Spanish government must study these warnings because it cannot legislate against companies’ interests. Aware of this potential misstep, Vice President Nadia Calviño recently recalled publicly the profits that companies have seen during her government tenure and hinted at a continuity policy in the future. Calviño has also divulged Moncloa’s significant goals: reducing inflation; completing the European Funds investment program; implementing ongoing reforms; and upholding the confidence of markets, companies, and communities To achieve these lofty objectives, the government must convey a sense of stability—another issue of concern amongst entrepreneurs.
The economic indicators suggest that Spanish companies have been and continue to be a good investment. This is not just theory; the reality is evident almost daily in newspaper headlines, in top executives’ statements, and, most important, in the decisions of companies and multinationals betting on growth in Spain. Despite the noise of political dispute, which is sometimes deafening, entrepreneurs and citizens have become accustomed to living outside the realm of legislative conflict. This may be a matter of survival, but the arrangement is far from ideal.
As our government must be aware, the most prosperous countries are those that maintain strong institutions and avoid too much fraught controversy over the quality of their democracy. The government must set an example in mitigating the divisiveness being stirred up in society and the recent questions over the security of Spain’s institutions, neither of which promote an economic climate of progress. As Bank of Spain governor Pablo Hernández de Cos emphasised recently, with an improved standard of living for Spanish citizens at stake, economic reforms encouraging our per capita income to converge with the rest of Europe’s must be finalised, but only through consensus amongst political forces. For the Spanish people, demanding such agreements is far from asking for utopia.
Published
December 03, 2023
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Senior Managing Director, Head of Spain Strategic Communications