Spain | Public investment, a weak link in growth

Summary

Spain needs to recalibrate its fiscal policy to ensure a greater emphasis on spending in production, infrastructure, education, and new technologies. This would help boost long-term growth and improve well-being.

Key points

• Key points:
• Data for Spain indicate a chronic insufficiency of public investment, particularly when compared with its neighboring countries and the growth observed in other areas of public spending.
• Public investment is a crucial component of public spending, as it incentivizes private investment, enhances capital endowment, boosts productivity, and fosters economic growth.
• Average gross fixed capital formation (GFCF) between 1996 and 2008 stood at 4.1 percentage points of GDP. After bottoming out at 2.0% in 2017, it settled at 2.7% of GDP in 2024, almost one point below the rate of 3.6% for the wider EU and half that of the Member States that joined in 2004 and are converging fastest.
• Equally alarming is the performance in terms of public investment per person of working age (in 2021 euros), as in 2024 it was at the same level as it was in 1996 and 42% below the high reached in 2009.
• According to a recent study by BBVA Research, the potential negative effects of excessive public spending on GDP per capita growth in the long term are more likely the less efficient this spending becomes and the more it constrains public investment.

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