The low investment of companies in equipment is one of the main elements of concern about the progress of the economy in Spain. The gross domestic product (GDP) advances, unemployment is reduced and there are more members of Social Security. But if we compare what companies invest in Spain with the average of the last three decades or with other European countries, the trend is unfavorable. Discounting residential investment, companies spend less on equipment (machines, vehicles or other goods) than before the pandemic. And its growth is lower than that recorded by GDP, corporate profits or liquidity.
The governor of the Bank of Spain, Pablo Hernández de Cos, in one of his last interventions placed low private investment as one of the main risks to the economy in the medium and long term. Why is it important for business investment to remain dynamic? “Productive investment is what sustains future growth. It is essential to achieve productivity gains,” answers Sofía Rodríguez, chief economist at Banc Sabadell. “Investment provides quality in growth,” she adds. María Jesús Fernández, senior analyst at Funcas, adds that “if investment remains weak for a long time, it does not improve, and the economy languishes.” Miguel Cardoso, chief economist for Spain at BBVA Research, uses the simile of iPhones: “It is not the same to work with the iPhone 1 as with the iPhone 15, although both serve the same purpose.” In the opinion of the BBVA economist, investment is a key factor in achieving productivity improvements.
As can be seen in the graphs, in all of them the investment is below the average of other indicators: GDP, business profits or liquidity. Sofía Rodríguez assures that there may be several reasons that explain the lower investment. “We are now in a time of economic and geopolitical uncertainty that may be holding back investment decisions,” she notes. The evolution of the war in Ukraine and Gaza raises doubts about the impact on European economies such as Spain. The effects range from a reorientation of public spending towards defense, which ends up affecting the entire economy, to damage for companies in supply chains or energy costs, as was seen with the outbreak of the conflict.
In the case of public investment, it acts as a driver for private activity, since it encourages companies to spend more. And in that parameter the trend is not good either. Public investment in Spain is around 2.5% of GDP, below that of the euro zone excluding housing. Spain is dedicating more to current spending than to investment.
The public sector may also be affecting private investment with the deployment of the Next Generation European recovery funds. Some economists maintain that there may be companies that, instead of investing with their own resources, may be waiting to finance their projects with European funds, which delays the implementation of the aforementioned investments. Miguel Cardoso believes that “the Next Generation funds are not causing the driving effect that was expected” and adds that “it is possible that there is a certain inefficiency in the deployment of aid.”
María Jesús Fernández believes that the rise in rates that makes the debt of companies necessary to finance investments more expensive may also be behind the relative bad behavior. But this is an element that affects all of Europe and, on the other hand, companies in the countries around us are not evolving so badly. Between the last quarter of 2019 and the last quarter of 2024, investment in equipment has grown by 3.2% in Europe and has fallen by 9.5% in Spain. In that same period, GDP growth has been almost identical: 3% in Europe and 2.9% in Spain. “It is worrying that it is not growing in Spain,” says Fernández.
Regulation is another element that can weigh on the minds of entrepreneurs. Some companies, such as energy companies, maintain that temporary taxes on the sector deter investments. Automotive companies have been warning for months that strict and differential regulation compared to other territories such as the United States could put investments at risk to comply with decarbonization plans.
Precisely, statistics show that investment in transportation is the one that is furthest below the situation at the end of 2019. While investment in transportation in the fourth quarter of 2023 is 24.2% below, that of “other equipment investment” was 2.9%. It is possible that companies are delaying purchasing decisions while waiting for new electrical technologies to become more mature. “Fleets are not being renewed because there is still uncertainty about the electric vehicle,” according to Miguel Cardoso.
