The productivity of the Spanish economy has fallen by 7.3% so far this century while that of the EU advances

2024-01-19 00:02:47

The production capacity of the Spanish economy per hour of work and per capital invested has fallen by 7.3% so far this century, which has increased the inefficiency gap that separates Spain from other countries that have achieved important improvements in the same period, such as USA (+15,5%), Germany (+11,8%), United Kingdom (+8.8%) or France (+0.8%). The same as Spain, Italia It has also lost efficiency of its workforce and its capital in this same period, with a delay (-5.1%), according to the data analyzed by the first report of the Observatory of Productivity and Competitiveness in Spain (OPCE) who have launched the BBVA Foundation and the Valencian Institute of Economic Research (Ivy).

The study, published this Friday, highlights that the lack of progress in total factor productivity (PTF) slows down the growth of GDP per inhabitant and widens the gap with countries that do manage to improve their efficiency. Thus, it is calculated that the distance between Spain and the EU in income per inhabitant has grown from 2.4% in 2000 to 14.4% in 2022.

“Spain continues to be below the EU in the level of this indicator that measures efficiency with which companies use the work and available capital (machinery, equipment, real estate assets, infrastructure) to generate added value,” says the report directed by the researchers Francisco Pérez, Matilde Mas, Dirk Pilat and Juan Fernández de Guevara.

In short, “this evolution of efficiency indicates a poor use of resources used,” the report states. “Spain’s disadvantage in productivity compared to other countries limits its international competitiveness because a part of its production system is not efficient, slowing down cost advantages when competing and improvements in rent per capita y welfare“he concludes.

Spain occupies the last position in investment in intangibles among advanced economies

Four stages since 2000

In the 22 years of this century covered by this analysis, the OPCE differentiates at least four stages. A first stage, between 2000 and 2013, in which productivity in Spain recorded a severe decline of 6.2%, weighed down by the financial crisis and, above all, by the bursting of the real estate bubble, which left the country littered with empty homes, premises and offices (or, which is the same thing, full of unproductive assets).

In a second moment, between 2013 y 2019 The report detects a growth of 1.2% in productivity which, although very slight, “marks a slight change in its evolution.”

The pandemic, however, interrupted this awakening of productivity, whose index recorded a sharp decline of 5.1% in 2021, thus reflecting the impact of the health crisis on hospitality, transportation, recreational and artistic activities, with a greater relative weight in the Spanish economy.

After the pandemic, the indicator has grown again, a cumulative 2.8% between 2021 and 2022 (1.4 points each year), recovering more quickly than after the previous crisis, as highlighted in the report by the BBVA Foundation and the Ivie.

Slow job progress and capital collapse

The balance of these four stages results in a 7.3% decline in the Total Factor Productivity which, according to the OPCE analysis, is the result of the combination of slow progress in efficiency per hour worked and a profound setback in the capital goods.

The work productivity, calculated by dividing the GDP by the total of the hours worked by those employedhas managed to grow at an annual average 0.7% since the beginning of the century. (Although this advance is less than the 1.1% in the EU or 1.4% in the United States).

At the same time, the capital productivity —the added value generated per unit of available capital endowments (machinery, technological equipment, real estate, public and private infrastructure)— has fallen on average between 2000 and 2022 by 1.2% each year, because accumulated investment has advanced more than the added value generated.

The causes

The Ivie economists relate the weakness of productivity per hour worked in Spain with factors related to “poor educational results”, temporary employment and a lower level of employment in more qualified sectors (which still have a relatively lower weight in Spain than in other developed countries). The “prevalence of unprofessionalized management models” in many companies also contributes to the poor productivity of the labor factor in the Spanish economy.

But above all, the low Spanish productivity is a consequence of the real estate ballast and of the weak investment in intangible assets (R&D, software and databases, design, brand image, company training for its workers, innovative organizational structures, etc.), whose potential to improve the efficiency of companies is high. Compared to advanced economies, Spain occupies the latest position in investment in intangibles. Although it intends to do so andl 40.5% of the total investment, this percentage is 20 points below those in force in the United Kingdom, Finland, the United States, France or Sweden. In relation to GDP, investment in intangible assets in Spain is at around 9.5%, almost half the rates of France, Sweden or the US. All in all, the OPCE report detects “a favorable change in trend” in the Spanish economy.

Meanwhile, the Spanish economy has not yet finished digesting the consequences of the 2008 real estate bustwhose burden “lasts to this day because real estate assets are very durable and can remain partially unused for decades, entailing amortization and financial costs for the companies or households that own them,” explains the report.

The solutions

To tackle the productivity problem detected in the Spanish economy, the OPCE highlights the need to reinforce “five direct levers”: productive investment, human capital, innovation and other intangible assets, digitalization and the productive dynamics of companies.

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Along with these direct drivers, the need to promote “indirect levers” for productivity such as promoting international trade and foreign investment policies; regulatory and competition policies; labor market policies; and industrial and regional policies.

The members of the Observatory also point out that Spain, jtogether with Italy and Estonia, They are the only countries in the euro zone that have not yet heeded the recommendation of the European Commission, in 2016, to promote National Productivity Councils to address these issues.