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- Southern Europe vs. Northern Economies: Focus on Spain
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By Stefano Fermani, Managing Director Italy & Group CFO
Following in Beaumont Group’s third instalment in our series focusing on the growth of the PIGS economies of Europe. This instalment takes a brief look at the growth, opportunities and challenges of Spain’s economy, as well as the challenges facing leaders across the business landscape.
Spain, like many of the EU economies — indeed many of the global economies, finds itself at a pivotal juncture as we approach the end of 2024. While there are numerous opportunities to bolster economic growth in Spain, the country also faces significant challenges that must be addressed to ensure long-term prosperity. Let’s take a look at the current challenges.
The Landscape
Challenges
Despite years of gradual economic recovery since the 2008 financial crisis, Spain continues to struggle with persistently high unemployment rates, especially among younger workers. According to Eurostat, Spain had one of the highest unemployment rates in the EU in 2023, with youth unemployment hovering around 29%. This structural issue not only hampers productivity but also increases social inequality, limiting overall economic progress.
Similar to nearly all of the global economies, Spain has experienced persistently high inflation due to the lingering effects of the Covid pandemic. supply chain disruptions, and the increased cost of energy following the Ukraine conflict.
Additionally, Spain’s public debt remains high, exceeding 110% of its GDP. Yet, this is a challenge with each of the PIGS economies, and the Spanish debt is not quite as high as is the case in Italy. Where the debt approaches nearly 170% of GDP. Yet this borrowing was necessary to support the Spanish economy during the pandemic. Reducing this debt load is now a pressing concern limiting the government’s ability to invest in future growth, infrastructure, and social services.
The Spanish population is also amongst one of the most rapidly aging in Europe, presenting challenges for the labour market, pension system, and its national healthcare services. A shrinking workforce could exacerbate productivity problems and lead to labour shortages in critical sectors.
Regional inequalities are also a significant challenge for the central government. Madrid and Catalonia thrive with innovation and higher GDP, regions like Extremadura and Andalusia struggle with lower economic output, higher unemployment, and lower incomes. These disparities challenge national cohesion and require targeted policy interventions.
Opportunities
On the positive side, there are some great opportunities that bode well for the Spanish economy. Like the other PIGS economies, Spain has access to substantial EU funds, including those under the Next Generation EU initiative, aimed at supporting post-pandemic recovery. These funds are being directed towards key areas such as green energy, digitalization, and infrastructure projects, providing Spain with an opportunity to modernize its economy and enhance competitiveness.
Spain is one of Europe’s leaders in renewable energy, particularly in solar and wind power. With its abundant natural resources, the country has the potential to become a green energy hub. The EU’s Green Deal and funding from the Recovery and Resilience Facility (RRF) offer significant opportunities to invest in clean energy infrastructure, making Spain a pioneer in the energy transition.
Spain is also amongst the top destinations for tourism. Prior to the Covid pandemic, tourism contributed nearly 12% to the countries GDP. After a sharp decline during the COVID-19 crisis, the tourism industry is rebounding strongly. The growth of sustainable and eco-friendly tourism, coupled with Spain’s rich cultural heritage, positions the country to regain its status as a leading global tourist destination.
Like Italy, Spain’s investments, both public and private investment, is focused on the digital economy. Government initiatives aimed at fostering innovation, improving digital infrastructure, and enhancing skills are already underway. Sectors such as fintech, e-commerce, and artificial intelligence are seeing increased investment, creating opportunities for growth in both domestic and global markets.
Agriculture has always been a strength of the Spanish economy and today it remains a foundational factor in future growth and success. Spain is one of Europe’s largest producers of fruits, vegetables, and olive oil. Despite climate challenges, Spanish agriculture continues to thrive, and the country’s proximity to EU markets gives it a competitive edge.
Additionally, Spain has long maintained strong economic, historical, and cultural ties with Latin America, dating back to colonial times. In recent years, these relationships have deepened economically, as Spain seeks to diversify its international partnerships and reduce dependence on traditional markets, particularly North America and the European Union.
What Does this Mean for the Spanish Economy and Business and Government Leaders?
As we move through 2024, Spain’s economy finds itself in a phase of transformation. While the country grapples with ongoing economic challenges, several key opportunities are emerging that present significant leadership potential for those who are prepared to navigate this shifting landscape.
Spain, as the fourth-largest economy in the Eurozone, has shown resilience despite global headwinds such as inflationary pressures, geopolitical uncertainty, and the lingering effects of the Covid pandemic. Tourism has bounced back and is approaching pre-pandemic levels. While visitors are returning, there is a need for innovation in sustainable tourism to meet changing consumer preferences. Other sectors like retail, hospitality, and manufacturing are also rebounding, though not without difficulties due to supply chain disruptions and rising input costs.
Like much of Europe, Spain is dealing with the impact of increasing energy prices and supply chain issues. These issues have been exacerbated by the ongoing conflict in Ukraine, which has destabilized energy markets placing incredible pressure on consumers, who already are experiencing higher living costs. While businesses also must deal with increased operating expenses as a result of core inflation and rising energy costs. However, Spain’s leadership in renewable energy offers a potential solution to mitigate long-term energy challenges.
With unemployment remaining stubbornly high, the country faces a structural problem that threatens future economic stability. The challenge for leadership is to create policies and pathways that can address this imbalance by focusing on education, skills development, and better integration into the labour market.
Interestingly, Spain has amongst the highest life expectancy rates in the world. Yet, with an aging population living longer puts significant pressure on the pension system and healthcare infrastructure. With fewer working-age individuals supporting an increasing number of retirees, there is an urgent need for leadership in healthcare reform, workforce re-skilling, and sustainable pension systems.
Despite these issues there are substantial opportunities for visionary leaders to make a difference in both public and private sectors. The Spanish economy in 2024 is a complex mix of challenges and opportunities. Leaders who can navigate these rapidly evolving dynamics — whether through driving innovation, addressing workforce issues, or spearheading sustainability efforts — will play a crucial role in shaping Spain’s future. By focusing on key growth sectors such as renewable energy, digital transformation, tourism, and entrepreneurship, leadership in Spain has the potential to lead the country toward long-term economic stability and growth.
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