Productive investment falls five points since the pandemic despite ‘Next Gen’ funds

Productive investment falls five points since the pandemic despite ‘Next Gen’ funds

The detail of the growth of the economy after the pandemic crisis and successive external shocks reveals an uneven recovery, with productive investment as the only indicator of domestic demand that remains below the pre-Covid level. This record is measured through the Gross Fixed Capital Formation (GFCF) and closed the fourth quarter of 2023 5.1 points below the level of the fourth quarter of 2019. The deployment of the ‘Next Generation EU’ funds is not generating the investment climate or the structural transformation of the Spanish economy that was expected, with blockages in strategic projects that delay the mobilization of money.

“Investment has a very poor performance, it is the only component that has not recovered pre-pandemic levels,” he summarizes. Miguel Cardoso, chief economist for Spain at BBVA Research. Last 2023 was expected to be the year in which European financing took cruising speed and promoted business investment in Spain. The tightening of rates has also influenced the decline in this data, which fell 1.2 points during the year.

As Cardoso, from BBVA Research, points out, “European funds have not had the expected impact in time and magnitude on the Spanish economy. There were expectations of helping to recover activity after the pandemic, but the execution has been less than expected . Of the package of 80,000 million euros in transfers, only 30,000 million have reached companies“In the background, bureaucratic problems arise, from a lack of personnel to distribute a huge package of transfers and also from excessive regulation, according to the economist.

Experts doubt a differential impact of European funds to date marked, in addition, by the large recipients of the financing: public companies, basically focused on Adif to decarbonize transport, and the import of goods. In fact, the assessments to date diminish optimism about the impact of the Next Generation on the Spanish GDP.

Part of European money is diminished abroad: Spaniards import goods such as solar panels or Chinese electric vehicles. “In the long term, this improves the decarbonization of the economy as a positive effect. But short term “it does not have all the desired impact on activity without production directly in Spain”indicates Cardoso.

It is one of the theses that would support that Spain is using the funds to improve growth on a temporary (short-term) and not structural (long-term) basis. The strategic projects of the Pertes, which have a presence in high added value businesses such as semiconductors, are blocked. The Central Administration is the one that has distributed the least money, and is the one that should mobilize the financing of the Pertes. “There is a design and requirement problem that the Government must assess”says Cardoso.

Another key is that a part of the European funds is not being allocated due to lack of demand. “The Move Plan is very inefficient and The lack of demand to buy electric cars influences, due to their price, and the funds do not flow. Until people are encouraged, they will not mobilize,” says the economist.

Investment collapse… except in one component

Fixed assets are those used repeatedly or continuously in a production process for a year or more. All types of buildings or housing (observing the construction value), machinery and capital goods and also animal or plant resources (example of a cow as a ‘machine’ that produces).

Well, thanks to calculations prepared with the economist Javier Santacruz and taking the last four years as a reference, the only component of the investment that is saved are the intangible intellectual property assets, which includes R&D, patents, computer programs or the so-called knowledge economy. The resources invested in intangible assets are now 6.6 points higher than the pre-pandemic level, although Spain is lagging behind Europe in this regard.

The negative evolution of investment in machinery is worrying (more than 10 points below the pre-Covid level after collapsing 5 points in the last quarter of 2023) due to its notable weight in the productivity of the Spanish economy. Similarly, investment in construction is significantly lower (-5.9 points). The trend is also accompanied by investment in biological resources, where we would find agriculture for example, which is 13.9 points lower after this period of unequal exit from the crisis.

The Spaniards produce 0.26 euros for every euro used in the process

There are many ways to measure whether an economy is developed or not: through development indices, reduction of inequality, wealth per inhabitant… various socioeconomic indicators among which the relationship between work productivity and stock also stands out. of investment available to each employee. With the complete 2023 National Accounts data at the European level, this comparison can be broken down.

Taking data from Eurostat with purchasing power parity (PPP), Labor productivity per Spanish employee is 74,930 euroswhile the value of fixed capital per employee (i.e. all the fixed assets that the worker has to produce) amounts to 285,800 euros. The productivity of capital reflects that the Spanish labor market is capable of producing 0.26 euros for every euro invested in fixed assets. That is, we need approximately four euros to produce one.

What differentiates us from Europe? The Eurozone as a whole produces 81,700 euros with a value of fixed assets of 275,900 euros. This comparison means that euro countries produce more than Spain with less: for every euro invested, they produce 0.30 euros.

This trend is repeated among the large euro economies. Each French worker produces 86,191 euros with 290,100 euros in fixed capital (0.33 euros produced for every euro at his disposal). In Italy, its employees produce around 83,425 euros from a capital of 249,900 euros (0.33 euros produced for each euro). The Germans produce a volume of 79,700 euros from 225,200 euros, that is, 0.35 euros for every euro at their disposal. The Germans are the most productive in quantity, since they employ 85% of their active population.

A developing economy is differentiated by a high rate of production with respect to the fixed capital used. This is the case of Poland, with a GDP per capita of a practically developed economy (29,155 euros in PPP), but with lower production (66,300 euros per employee). The differential detail is that they produce 0.49 euros for every euro of resources at their disposal.


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