Spain: Slouching To Recovery

The Spanish economy, one of the worst hit by Covid-19 in 2020, is recovering from the pandemic. However, a mix of supply-side bottlenecks such as microchip shortages and growing energy costs are affecting the pace of its healing. The risk of new pandemic waves still hangs over business, especially tourism, while the European Union’s NextGenerationEU (EU Next Gen) plan for massive spending to address climate change, healthcare and other key issues—is far from being implemented. It will take months, if not years, before its impact on Spain’s economy is felt. It may end up as a good thing in a country expected to have the world’s oldest population by 2050.

EU Next Gen Lag

How quickly Spain will benefit from the EU Next Gen plan, which consists of almost €70 billion (over $80 billion) in grants plus a smaller amount in loans, remains unknown. “We initially envisaged some concentration, especially between 2022 and 2023; but we now recognize that, likely, some of the spending will be back-loaded. At the same time, we are quite confident that the funds will be utilized in the planned way,” says Muscatelli.

Still, he believes the crisis has inspired a new political understanding with respect to long-term investments in technology and education. “This different mindset bids some optimism for the future,” he says. “There is a possibility that the long-haul impact [on growth and productivity] from the pandemic will be positive.”

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