Madrid If the state of the economy alone were to decide the upcoming elections in Spain in 2023, the governing socialists would have nothing to worry about. Inflation in Spain was the lowest in the EU in November. The labor market has remained comparatively stable following a reform, and the experts believe that there is no threat of recession in the EU’s fourth-largest economy in the coming year.
The problem is politics – again. Socialist Prime Minister Pedro Sánchez has managed to keep his minority government with the left-wing populists from Unidas Podemos alive. After three new elections, Spain has given much-needed political stability, especially in the corona crisis.
However, Sánchez secured the votes for his majority with concessions to Catalan and Basque separatists, some of which were very controversial. His critics therefore accuse him of doing everything to stay in power. The rift between the socialists and conservatives has widened over the past three years.
A preliminary decision on the future Spanish government will be made in the local and regional elections at the end of May. “Whoever wins there has always won the national elections,” says Ignacio Lago, a political scientist at the Pampeo Fabra University in Barcelona.
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In polls for the elections to the national parliament at the end of the year, the conservative Partido Popular (PP) would win a majority with the far-right Vox. However, their lead has recently decreased.
Expert: The two-party system in Spain is returning
Lago expects young parties like Vox and the left-wing populists from Unidas Podemos to lose seats in the national elections. “The two-party system is returning to Spain,” he says with certainty.
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Vox emerged from the crisis with the pro-independence Catalans, who have since lost ground. Unidas Podemos emerged from the economic crisis of 2008, which has also been overcome. Neither the pandemic nor the energy crisis have hit Spain as hard.
Spain’s economy, with its important tourism industry, collapsed more during the pandemic than that of all other industrialized nations – by 10.8 percent. However, short-time work has prevented a blatant slump in the labor market. The funds from the European reconstruction fund are only slowly reaching the real economy in Spain. In the future, however, they will secure the country billions in aid for investments and reforms.
Spain’s prime minister is up for re-election in 2023.
(Photo: Reuters)
The energy crisis, on the other hand, does not hit Spain as hard because the country has received hardly any gas from Russia and instead has a pipeline to the gas supplier Algeria. In addition, Spain has the largest capacity in the EU to harness liquefied gas delivered by ship.
Spanish central bank expects economic growth of 4.6 percent for 2022
The Spanish central bank expects Spain’s economy to grow by 4.6 percent this year and by 1.3 percent next year. They don’t even expect a technical recession, ie two consecutive quarters with shrinking gross domestic product, for Spain.
Nevertheless, Spain’s economic output, unlike that of the other EU countries, is still below the level before the pandemic. Experts do not expect a return to the pre-crisis level until 2024.
In contrast, there are already signs of relaxation on the labor market. A reform there has prevented the excessive use of fixed-term contracts in Spain. This includes that in future seasonal workers, such as those employed in tourism, will also receive a permanent contract that is only suspended outside of the season.
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According to the Spanish Central Bank, the number of temporary contracts in Spain fell by 13.5 percentage points compared to the previous year as a result of the labor market reform in November. This in turn could have boosted consumption by 0.3 to 0.4 percentage points. After the pandemic, he initially recovered only hesitantly.
“The reform means that companies will initially choose other options when incoming orders are falling, such as reducing working hours instead of letting fixed-term contracts expire,” says Rafael Doménech, chief economist at the Spanish bank BBVA.
Sánchez wants to make his country Europe’s hub for green hydrogen
In terms of perspective, Spain also has ideal conditions for benefiting from renewable energies. With its many hours of sunshine and open spaces for solar and wind energy, green energy can be produced more cheaply there than anywhere else. Spain’s Prime Minister Pedro Sánchez therefore wants to make his country the center of green hydrogen in Europe.
“Spain undoubtedly has a competitive advantage here,” says Ramón Mateo, director of the beBartlet consultancy. Unlike Africa, for example, the country not only has sun, but also world-leading energy companies that have the necessary technology and know-how.
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In addition, a number of industrial users are located in Spain, for example from the ceramics or steel industry. “They create a critical mass of buyers for green hydrogen, so that investments in this new technology are worthwhile,” says Mateo. “In the second step, Spain can then export.”
Doménech also sees great opportunities for renewables. However, they are not a sure-fire success. “In order for investors – whether domestic or foreign – to invest in Spain, they need planning security,” he warns. But Madrid unsettled investors this year with excess profit taxes for energy companies and banks. Some investors are already considering alternative locations.
There is still a large gap between Spain and the countries of northern Europe in terms of per capita income. “And experience shows that a country’s economic success always stems from the growth in private investment – that’s why investment security is so important.”
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