Welcome to this new podcast from BNP Paribas’ Economic Research Department. My name is Hélène Baudchon, I am Deputy Chief Economist and I am also in charge of the OECD team in the Economics Department of BNP Paribas. Today, I am with Guillaume Derrien, a senior economist also in the OECD team. Guillaume, hi.
Hello, Hélène, hello everyone.
Guillaume, in February this year you published a long article, what we call an Ecoconjoncture, where you focus on the deficit in productivity in Spain: its trends in relation to other countries, as well as its multiple origins. You also provide some perspective, including the expected effects of the current national recovery plan. In this podcast, which will be divided into three parts, we will pursue this subject of low productivity in Spain, which is not, as we will see, specific to Spain, and that is a issue that other countries are experiencing. But let’s focus on Spain.
First of all, the evolution of productivity in Spain, what are the main trends, how does it evolve in relation to its European neighbours.
As you mentioned in your opening remarks, Hélène, the Spanish economy suffers from a chronic weakness in productivity, a weakness that is shared, as you also said, by most countries from southern Europe. Apparent hourly labour productivity …
Apparent hourly labour productivity: can you define what you mean by this?
Yes, indeed. Apparent labour productivity is generally obtained by dividing value added (broadly speaking, a company’s income) by the number of hours worked or by the number of employees. These are the two classic measures, the simplest to calculate. The first is called the apparent hourly productivity of labour, the second is the productivity per employee (or per head). In the Ecoconjoncture’s article, we focused on apparent hourly productivity.
Coming back at the evolution of labour productivity in Spain, what are the most striking developments?
This productivity has increased in Spain on average over the last 20 years (2000-2021) by only 0.7% per year. This was both lower than in Germany, where the average increase was +1.1%, and in France, where the average increase was +0.9%. Looking at the eurozone as a whole, Spain is even below it, as the monetary union recorded an average annual increase in productivity of 1.0%.
?You mention here the productivity gap between countries, on an aggregate scale, but you have also highlighted disparities between sectors of activity.
Yes, that's right, Helene. In the article, we compared productivity levels in 31 industries and the conclusion is straightforward: in 2018, Spain had hourly productivity above the eurozone average in only 8 of the 31 industries covered. The sectors that perform best are agriculture and energy (gas, electricity). On the other hand, the biggest deficits are in the IT sector, public administration and the chemical industry. This results in an average productivity deficit of 18% compared to the euro area average. The gap is wider compared to Germany and France, the deficit being above 30%.
Paradoxically, economic growth had been rather solid until the crises of 2008/2011. So how do we reconcile low productivity gains with sustained growth?
?That's right. In the late 1990s, Spain experienced a decline in productivity, followed by a period of near stagnation that lasted until the 2008 global financial crisis. This does not mean, however, that economic growth was sluggish at the same time, quite the contrary. In the short term, during an economic cycle, which can range from 5 to 10 years, productivity and economic growth can diverge, sometimes significantly.
That is what happened in Spain. The economy has had to use other growth levers – I am thinking in particular of debt.
Yes, indeed. During the cycle of economic expansion, which broadly spread from the bursting of the internet bubble in the late 1990s/early 2000s, until the 2008 financial crisis, private debt, particularly household debt, rose significantly. It increased from 16% of disposable income in 2000 to 70% in 2008. This has helped to fuel economic growth, which has grown very steadily, averaging just over 3% a year between 2000 and 2008.
In terms of GDP, the main drivers of growth are consumption and investment. Was there a real imbalance in this second component?
Indeed, the high level of investment during this period was largely due to the construction sector, which generate, on average, less productivity gains. To give you a few figures: the share of investment in construction in total investment, which was already 60% at the end of the 1990s, peaked in summer 2006 at 70%. In the European Union, this share never exceeded 55%: that shows you the extent of the imbalance in Spain!
?Yes indeed. If I sum up, up to 2008, the increase in investment in construction has therefore helped to sustain economic growth and, in a way, to mask, let’s say temporarily, the low levels of investment in other components that are better able to generate productivity gains, be it R&D or capital goods investments
Has this investment deficit had any other impact than those discussed so far which evolve around productivity?
This has had important social consequences too. Economic growth in Spain has certainly picked up again in the five years leading up to the health crisis – Real GDP grew at an average annual rate of 2.6% between 2014 and 2019, compared with 1.9% for the euro area as a whole. But the gap in real GDP per capita has continued to widen relative to Germany, which is often taken as the reference country in Europe. Spain’s GDP per capita which was 74% of that of Germany in 2000, went down to 70% in 2019. This gap widened further with the health crisis, it widened to 66% in 2021
While Spain remains the fourth largest economy in Europe, in terms of GDP per capita, it is only the 11th largest of the 19 countries that make up the eurozone.
Thank you very much Guillaume for the first analysis of productivity issues in Spain, which provided a broad perspective and a comparison with the European partners. This is the end of this first episode of this podcast on the subject. In the second episode, to follow, we shall discuss the factors underlying the deficit in productivity in Spain. See you soon.
