Spanish economy challenges
According to the latest Annual Report of the Bank of Spain, the Spanish economy outlook will depend, in addition to "overcoming the current health crisis", on how the following structural challenges are addressed: to increase productivity, to correct some markets’ inefficiencies (especially in the labor market), the sustainability of public accounts (considering high levels of debt and deficits), and other challenges related to the aging of the population, inequality and climate change.
The Bank of Spain's Annual Report offers a broad analysis of the situation of the Spanish economy and the main risks and vulnerabilities it faces in the short and long term, also paying attention to the international environment.
According to the Bank of Spain (BoS), the Spanish economy outlook will depend on the duration of the health crisis and on how the following structural challenges are addressed, some of which have been exacerbated during the pandemic:
- To increase productivity: To that aim, it would be convenient to implement policies that favor business growth and stimulate the accumulation of human and technological capital, promoting a rethinking of the educational system as a whole, areas in which Spain is lagging behind neighbour countries.
- To improve the labor market: The BoS points out that "the high duality between temporary and permanent workers must be corrected, and active employment policies must be reviewed in depth. "In times of crisis, employment adjustments mainly affect the most vulnerable workers, increasing inequality.
- The aging of the population with numerous implications in multiple areas beyond the sustainability of public pensions, such as the depopulation of rural areas. According to the BoS, "it would be convenient to promote the extension of the working life of older workers and to analyze the reasons for the low fertility rate in Spain".
The report highlights three major interrelated levers to address the above challenges:
- The design and approval of an ambitious structural reform agenda, based on broad consensus and a long-term vision.
- The definition and execution of a multi-year budgetary consolidation plan, which once the current crisis has been overcome, will make it possible to reduce financial and macroeconomic vulnerabilities derived from high levels of public debt and a structural deficit.
- The use of European recovery funds (Next Generation EU) to finance structural reforms that entails very high costs in the short term and only tangible benefits in the long-term.