The Spanish Recovery Plan (I): Macroeconomic impact

Spain was one of the countries hardest hit by the outbreak of the COVID-19 pandemic in early 2020, with a particularly sharp drop in sectors most affected by the fall in global demand and mobility restrictions.

The safety net deployed from the outset, supported by the European response on the monetary and fiscal fronts, has been effective in mitigating the economic and social impact of the pandemic and. This response, which has mobilised an unprecedented volume of public resources, allowing the Spanish economy to avoid this time the spiral of job destruction and GDP drop of previous crisis. In addition, measures have been adopted to protect the most vulnerable groups and try to prevent a worsening of inequalities in the country.

Although these measures have been able to preserve the productive tissue, employment and household incomes, maintaining therefore a good economic basis for the rebound as of the second half of 2021, they are not sufficient to restore in the short term output levels and the growth path prior to the pandemic. In addition, this shock has accelerated structural transformation and digitalisation processes, adding to the negative impact of rising inequality and the sharp fall in public investment experienced since the previous financial crisis.

Beyond short term support measures, it is clearly essential and urgent to provide an additional boost to our economy through an ambitious investment and reform Plan, with a triple objective: supporting the economic recovery in the short term; promoting a structural transformation & modernization process in the medium term; and, achieving in the long term a more sustainable and resilient growth pattern, from an economic and financial point of view but also from the social, territorial and environmental perspectives.

The new EU funding instruments Next Generation EU, with up to EUR 140 billion in transfers and credits allocated to Spain for the 2021-2026 period, provide an extraordinary opportunity to deploy an ambitious investment and reform Plan and counteract the impact of the pandemic on investment and economic activity. It is also an opportunity to boost the recovery and engage in a deep transformation of the economy, comparable to that which took place when Spain joined the EU in 1986

In this context, the Spanish government has publicly presented the draft Recovery Plan “España Puede”, with a view to finalizing national consultations and sending it to the EU Commission in the course of April. In order to maximize the counter-cyclical impact, the plan details investments and reforms frontloaded to the 2021-2023 period, with a strong focus on mobilizing public and private investment to recover the levels prior to the financial crisis, particularly in the area of R&D, and a strong focus on the green & digital twin transitions. 

The draft Recovery Plan details a coherent and balanced programme of 212 investment and reform measures to mobilize up to 70 billion euros in public investment, almost 40% of which will be earmarked for the green transition and 30% for digitalisation, with a clear commitment to education and training (10.5%), R&D&i (7%) and an important focus on strengthening social inclusion and territorial cohesion.

This plan will build on the economic policy roadmap followed in Spain for almost three years, which garners strong social consensus but had until now a limited investment scope due to the fiscal margin available. Ambitious reforms will reinforce the impact of investments to modernise the productive tissue and public administration, to increase productivity and the economy’s potential growth, to create quality jobs throughout the country; and to promote a humanist digitalisation and a green economy, protecting biodiversity while responding to climate change.

In short, it is a plan for Spain to recover pre-crisis GDP by the end of 2022 and increase potential growth above 2%, to reduce social, territorial and gender inequalities and the outstanding unemployment rate, youth employment and precariousness, to move towards a more sustainable growth pattern. To position Spain among the most advanced countries from an economic and social point of view, and one of the engines of growth, modernisation and prosperity in Europe as a whole.

As President Sánchez pointed out in his presentation in Congress on April 14th, this is the greatest opportunity for Spain since joining the European Union.

And we are not going to miss it!