EcoFlash

Hopes of a green recovery

9
June 2020  
Spain: hopes of a green recovery  
Guillaume Derrien  
The Covid-19 crisis will leave its mark on the  
economy. However, the decade ahead offers new  
prospects for growth and employment.  
Spain technology sector value added  
Index 2000 = 100  
Information & communication + professional, scientific &  
Spain suffers from a lack of employment and  
investment in technology-related sectors, but has  
opportunities to close these gaps.  
technical services VA  
--- Total VA  
2
00  
The renewable energy sector can be a significant  
source of employment over the medium to long term.  
185  
170  
The National Energy and Climate Plan is a significant  
step forward (if passed and implemented).  
155  
140  
125  
110  
The European Green Pact and Brexit may also help  
boost high-tech investment in the country.  
The Spanish economy will be one of the hardest hit by the  
Covid-19 crisis. The latest figures from the Spanish  
Employment Office (SEPE) confirm the sharp deterioration in  
the labour market: although the rate of decline in employment  
eased in May, it was nevertheless 70,800 last month, taking  
the fall for the last three months to 1,119,000 jobs. Over the  
1
95  
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20  
2
Figure 1  
Source: Eurostat, BNP Paribas  
same period, unemployment has jumped 803,668, to  
However, it would be misleading to compare the current  
situation to the crises of 2008 and 2011. The systemic risks  
were, prior to the current health crisis, smaller than in these  
past downturns. Up until the end of last year, consumer and  
business indebtedness fell markedly, the government deficit  
had been reduced and the housing market had turned higher  
3
3
,936,000, pushing the unemployment rate at around 17,1% .  
The creation in urgency of a minimum living income, approved  
by decree on 29 May and introduced from June, is a direct  
response to the increase in unemployment and poverty that  
the country will face over the coming months.  
(up 2.1% y/y in Q4 2019, compared to a record fall of 10.0%  
y/y in Q4 2012). The Covid-19 crisis will break this positive  
cycle and the economic recession in 2020 will be sharp.  
However, the epidemic seems to recede rapidly in Europe  
and borders within the Schengen area are progressively  
reopening: this raises hopes of a stronger-than-expected  
economic recovery in the second half of 2020, particularly in  
the tourist industry, which is a key sector in Spain.  
1
For a detailed analysis of these weaknesses, see EcoFlash  
Eurozone: Four countries, four ways to recover, 20 May 2020.  
2
Number of workers registered with the social security system.  
Seasonally-adjusted data.  
3
Assuming that the active population (16 and over) remained the  
same as in Q1 2020 (22,994,200; source: INE).  
EcoFlash // 9 June 2020  
economic-research.bnpparibas.com  
2
Technological transformation: Spain lagging  
behind?  
%
Technology sector share*, Q4 2019  
Intellectual property  
products investment  
It would also be wrong to ignore the profound transformation  
occurring in the Spanish economy since the financial crisis of  
Value added  
(% total VA)  
Employment  
(% total employment)  
(% GDP)  
2
008. The economic weight of the ‘technology sector has  
EU-28  
Spain  
Austria  
Belgium  
Bulgaria  
Croatia  
17.3  
13.3  
13.6  
20.5  
12.8  
13.5  
17.2  
13.0  
15.5  
17.7  
19.5  
16.4  
8.8**  
16.6  
25.1  
13.4**  
13.5  
11.2  
21.5  
20.5  
12.9  
11.5  
15.0  
14.5  
14.3  
9.2  
8.2  
9.2  
8.7  
6.5  
7.1  
10.9  
7.9  
9.9  
9.8  
9.3  
9.1  
7.9  
6.8  
11.5  
9.1  
6.4  
7.2  
13.3  
10.4  
6.6  
7.5  
4.7  
6.7  
8.3  
5.0  
3.4  
5.0  
-
2.4  
-
increased, and particularly since 2013. This trend can be seen  
at different levels:  
i)  
In terms of employment: the numbers of jobs in the  
information and communications sector and in  
“professional, scientific and technical services”  
Cyprus  
-
increased by 21.7% (+90k) and 14.7% (+302.5k)  
respectively between Q1 2008 and Q1 2020.  
Conversely, total employment fell by 8.7% (-1,723k)  
Czech Republic  
Denmark  
Estonia  
France  
Germany  
Greece  
Hungary  
Ireland  
Italy  
4.4  
5.6  
2.9  
5.9  
4.0  
1.6  
3.4  
-
3.2  
1.5  
2.4  
1.4  
4.6  
2.8  
2.9  
1.9  
-
over the same period. As  
a share of total  
employment, these two sectors accounted for a  
combined 15.7% in Q1 2020, compared with 12.3%  
in Q1 2008.  
ii)  
In terms of production: value added from these two  
sectors represented 13.3% of total value added, up  
from 10.6% in 2008.  
Latvia  
Lituania  
Luxembourg  
The Netherlands  
Poland  
Portugal  
Romania  
Slovakia  
Slovenia  
iii)  
In terms of investment: the share of investment in  
intellectual property products (patents, inventions)  
climbed from 2.55% of GDP in Q1 2008 to 3.56% in  
4
Q1 2020.  
The increase in the share of high value added sectors in the  
economy is happening across most developed countries. It  
reflects to a large extent the expansion of the digital  
economy, both in services (e-commerce, fintech, apps) and  
industry (production chain automation, industrial robots,  
connected objects).  
3.0  
*
Technology sector = information & communication + professional, scientific &  
technical services  
* Data are for Q3 2019  
*
Table 1  
Source: Eurostat, BNP Paribas  
However, Spain continues to lag behind other major  
European countries. Table 1 compares EU economies on  
these three measures (value added, employment and  
investment). Spain remains below the EU-28 average, and in  
particular behind France and Germany. Looking beyond  
Europe, Spain is also trailing the US and Japan.  
In the renewable-energy sector: Spain benefits from  
favourable landscape and climate for the  
development of renewable energy, in particular solar  
a
power. In 2019, Spain was Europe’s leader for  
5
onshore wind power. The country also became the  
The lag in cutting-edge investment explains partly why Spain  
has not generated sufficient new jobs to offset losses in more  
traditional sectors heavily impacted by these technological  
transformations (manufacturing, construction and even  
finance). Nissan’s announcement that the company will close  
its Barcelona plant  causing the loss of 2,800 jobs  is the  
latest example of the difficulties faced by the car industry vis-  
à-vis technological changes and increased competition from  
China in the electric-vehicle segment. The Covid-19 crisis has  
exacerbated these difficulties, but it is not the main cause,  
which is mainly structural.  
biggest recipient of solar power investment in Europe  
last year: installed capacity was 4.5GW, compared to  
6
4GW in Germany and 0.9GW in France. The Covid-  
19 crisis is expected cause to a slowdown, or even a  
7
drop in investment over the short term (2020-21).  
However, Spain’s lead in this sector could represent  
a significant source of employment for the country.  
The solar power industry could generate 1.73 million  
jobs in Europe, which is equivalent to nearly half of  
the new jobs in the whole renewable energy sector  
8
for the region (between 3.3 and 3.4 million).  
Green investment: an opportunity to be seized  
The Covid-19 crisis, major structural challenges (climate  
change, ageing population), and the large fiscal stimulus  
packages announced by governments and the EU, should  
increase the weight of technology sectors in all ‘developed’  
economies over the coming years. Spain has key strengths to  
take advantage of this potential wave of investment:  
5
Renewable energy market update May 2020, International  
Energy Agency, pages 35-37.  
6
Ibid, pages 26-27.  
According to the IEA, installation of new solar capacity in  
7
Europe could be 18% lower than in the pre-crisis scenario (see  
Renewable energy market update May 2020, International  
4
Energy Agency).  
Other sources of investment should also be taken into account,  
8
See Ram M. et al., Job creation during the global energy  
such as investment in software or in information and  
communication technology. However, data are missing for  
numerous countries which does not allow for a like-for-like  
comparison.  
transition towards 100% renewable power system by 2050,  
Technological Forecasting and Social Change, February  
2020.  
EcoFlash // 9 June 2020  
economic-research.bnpparibas.com  
3
Recent announcements by the Spanish Government  
have been encouraging: last month was presented a  
National Energy and Climate Plan, which sets an  
objective of carbon neutrality by 2050. This plan still  
needs to be approved by the parliament. If it goes  
forward, it would put a moratorium on any new fossil fuel  
project and would seek to achieve 100% renewable  
electricity by 2050. Government estimates suggest that  
this plan will require EUR 200 billion investments over the  
next 10 years and could generate 350,000 new jobs each  
year.  
DESI index (2019)  
8
0
7
6
5
4
3
2
1
0
0
0
0
0
0
0
0
Fintech: Spain remains a major fintech centre in  
Europe. According to the Bank of Spain, the number  
of fintech firms in Spain (224) was close to the level  
in Germany (261) and the highest in Europe on a per  
9
capita basis. The UK’s departure from the EU – the  
Figure 2  
Source: European Commission, BNP Paribas  
UK dominates by far the sector in Europe, with 1,171  
fintech companies in 2019  could lead to a reshuffle  
in Europe and allow Spain to attract more investment  
and create more jobs in this sector.  
More broadly, Spain seems well placed in the digital  
economy sphere relatively to its main European  
partners. According to the European Commission’s  
Digital Economy and Society index (DESI), Spain  
th  
ranks 11 in Europe in 2019, behind the Netherlands  
rd th th  
3 ) and the UK (5 ) but ahead of Germany (12 )  
th 10  
(
and France (16 ). Spain performs well in the  
th  
digitisation of public services (4 ), but is lagging  
significantly in the level of digital education of its  
th  
population (17 ). Between 2014 and 2019, Spain’s  
th  
th  
DESI ranking increased from 13 to 11  
There are still many obstacles for Spain to take full advantage  
of these opportunities: the public deficit will widen sharply this  
year, further limiting the government’s fiscal leeway. The need  
to tackle higher unemployment could, in the short term,  
reduce investment in ‘high-tech’ sector and dampen the  
political will to follow an ambitious agenda in this area. The  
lack of digital education (as highlighted by the DESI index) will  
take time to be resolve and could limit the supply of labour  
needed to develop these new sectors.  
On this point, the European Green Pact and the EU recovery  
package of EUR750 billion (EUR500 billion in grants and  
EUR250 billion in loans) could strongly support the Spanish  
economy. Under the current EU recovery package, Spain  
would benefit from EUR77.3 b1illion in grants,  
a sum  
1
equivalent to 6.2% of annual GDP .  
The structural challenges facing the Spanish economy are not  
isolated cases. Germany (automotive and coal sectors),  
France (automotive and retail sectors), the US (oil and retail  
sectors) and China (metallurgy and coal sectors) are all facing  
similar challenges in transforming their economies. The  
question is not when, but at what pace Spain will conduct this  
transition, which is essential for the country in order to remain  
competitive as well as to create long-term and, overall, better-  
paid jobs.  
9
Financial Stability Review, Spring 2020, Bank of Spain, pages  
0
Based on 2019 GDP.  
1
1
1
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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