Presentation of the 2018 OECD Economic Survey of Spain

2018 OECD ECONOMIC SURVEY OF SPAIN Making growth work for all 22 November 2018, Madrid http://www.oecd.org/eco/surveys/economic-survey-spain.htm

@OECDeconomy @OECD

Growth has been robust GDP growth, year-on-year % change 6 Spain

Euro area

4 2

0 -2

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-6

2005

-4

Source: OECD, Economic Outlook (database).

2

The economy is increasingly more open Exports as a share of GDP 34 32 30

28 26 24 22 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: OECD, Economic Outlook (database).

3

Employment has grown steadily Employment rate % of population (15-64 year-olds) 70

65

60

55

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: OECD, Employment and Labour Force Statistics.

4

Unemployment is falling, but remains high % of the labour force 70 Unemployment

60

Youth unemploymentยน

Long-term unemployment

50 40 30 20 10 0

2010

2011

2012

2013

1. As a percentage of 15-24 year-olds labour force.

Source: Eurostat and OECD.

2014

2015

2016

2017

5

Non-performing loans have improved but remain high Ratio of NPLs to total loans 2018Q1 or latest

16

12

8

ITA

PRT

IRL

ESP

POL

LVA

SVK

HUN

ISL

FRA

BEL

AUT

CZE

NLD

DEU

NOR

USA

LUX

AUS

SWE

CHE

GBR

EST

0

CAN

4

Source: IMF, Financial Soundness Indicators.

6

Banks will need more capital Regulatory Tier 1 capital to risk-weighted assets 2018Q1 30 25

20 15 10

0

ESP USA ITA PRT FRA AUT CHE HUN POL BEL DEU SVK GRC GBR CZE NOR SVN NLD DNK LTU FIN LVA IRL SWE LUX EST

5

Source: IMF, Financial Soundness Indicators.

7

Public debt remains high % of GDP 120 100 80 60 40

20 0

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Source: OECD, Economic Outlook (database).

8

Population ageing will put pressure on pension spending Gross public pension spending as a share of GDP

15

14 13 12

2060

2056

2052

2048

2044

2040

2036

2032

2028

2024

2020

10

2016

11

Note: Based on implementation of both the 2011 and 2013 pension reforms and data from May 2018.

Source: The Ageing Report (European Commission, 2018).

9

VAT tax revenue is low VAT revenue ratio,% 2015 100 80 60

40 20

MEX ITA GRC TUR ESP POL GBR BEL CAN IRL FRA NLD PRT AUS SVK LVA ISL FIN OECD DEU NOR DNK SWE CZE AUT SVN HUN ISR KOR CHL CHE JPN EST LUX NZL

0

Note: The VAT revenue ratio is the ratio of actual VAT collection to revenue that would be collected if VAT was applied at the standard rate to the entire potential tax base and all revenue was collected.

Source: OECD (2018), Consumption Tax Trends 2018: VAT/GST and excise rates, trends and policy issues.

10

Public expenditures are highly decentralised Central government expenditure as a share of total public expenditures 100 80 60 40

0

DEU BEL ESP CAN FIN NLD ITA DNK POL FRA SWE AUT LUX LVA SVK SVN ISL GRC HUN PRT CZE NOR EST GBR IRL

20

Source: OECD (2017), Government at a Glance 2017 (database).

11

Main macroeconomic policy recommendations 1.

Maintain momentum for structural reforms enhancing productivity and job creation.

2. Stick to medium-term fiscal targets to ensure a durable reduction of public debt.

3. As the recovery continues, set a more ambitious fiscal consolidation path.

4. Further extend the pensionable earnings reference period and the number of years of contributions required to gain a full pension.

5. Abolish reduced value-added tax rates that are regressive.

6. Increase taxation of fuels to better reflect emissions of CO2 and other pollutants.

7.

Make the expenditure rule the main rule for regions and link it to the debt ratio targets.

12

Improving well-being and reducing regional disparities

13

Income inequality is high

0.5

Gini coefficient after taxes and transfers 2015 or latest

0.4 0.3 0.2

0

ISL SVN SVK DNK CZE FIN BEL NOR AUT SWE LUX HUN DEU POL KOR FRA CHE IRL NLD OECD CAN ITA JPN EST PRT AUS GRC ESP LVA NZL GBR ISR USA TUR CHL MEX

0.1

Source: OECD, Income Distribution and Poverty (database).

14

0

DNK FIN SVN KOR ISL NOR SWE IRL DEU AUT CHE NLD CZE BEL GBR FRA LUX HUN EST LVA AUS OECD POL NZL SVK PRT CAN GRC LTU ITA MEX USA CHL ESP TUR ISR

The rate of child poverty is high %, 2015 or latest

30

20

10

Source: OECD, Income Distribution Database.

15

Social expenditures are poorly targeted Transfers received by working-age individuals % of average cash transfer 180 160

Spain

OECD

140 120 100 80 60

40 20

0 Poorest 20%

Richest 20%

Source: OECD, Social Expenditure Database.

16

Regional dispersion of poverty rates is high At-risk-of-poverty rate 2016 60 National average

Region with lowest poverty rate

Region with highest poverty rate

50

40 30 20 10 0

SVN NOR DNK NLD POL HUN SWE FIN

CZE SVK GRC CHE ESP

ITA

Source: Eurostat.

17

Unemployment rates differ across regions % of the labour force 2017 30 25 20 15 10 5 0

OECD

Region with lowest unemployment (Navarra)

Spain

Region with highest unemployment (Extremadura)

Source: OECD, Labour and Regional Statistics.

18

Job market programmes are not concentrated in training Participants in active labour market programmes % of the labour force, 2015 Training

Other active measures

10

5

0

DEU CHE AUT NOR SVK FIN IRL NLD PRT POL BEL SWE DNK FRA HUN ESP LUX

Source: OECD, Employment and Labour Market Statistics.

19

Regional migration rates are low Migration flows across regions % of total population, 2013-16 5 4 3 2

1 0

ITA

ESP

PRT

OECD

DEU

NLD

GBR

Source: OECD (2018), Regions and Cities at a Glance (database).

20

Regional disparities in school drop-out rates are high 2017 30 25 20 15 10 5 0

Region with lowest drop-out rate (Basque Country)

European Union

Spain

Region with highest drop-out rate (Balearic Islands)

Note: % of the population aged 18-24 with at most lower secondary education and not in further education or training.

Source: Eurostat.

21

Participation in life-long learning by low-qualified adults is relatively low Participation by those with lower than secondary education 2017 25 20 15

10

0

GRC POL ITA HUN TUR SVN CZE IRL BEL LVA ESP PRT EU28 DEU LUX GBR AUT EST FRA NLD CHE ISL NOR FIN DNK SWE

5

Source: Eurostat.

22

Recommendations for reducing regional disparities for inclusive growth 1. Increase spending on training and job-search assistance.

2. Remove barriers to competition of training centres across regions.

3. Introduce a single point of contact for social and employment services.

4. Ensure full portability of social and housing benefits across regions, by providing temporary assistance either by the region of origin or the central government.

5. Increase individualised support to students at the risk of failing at an early stage.

6. Target existing financial incentives for lifelong learning opportunities to low-qualified workers and link them to individuals.

23

Boosting productivity and internationalisation

24

Productivity growth has stagnated Multifactor productivity growth 120 Spain

France

United States

115 110 105 100 95

2000

2003

2006

2009

2012

2015

Source: OECD, Productivity Database.

25

Labour productivity differs across regions

Output per work (in thousands of euros) Canary Islands

Note: Darker colours represent a higher level of labour productivity.

Source: OECD, Regional Statistics database.

26

Export participation of SMEs remains relatively low Share of exporting SMEs, % of total enterprises, 2015 50 40 30 20

0

CZE GRC TUR SVK FRA IRL HUN SWE FIN POL ESP USA ITA GBR PRT NLD BEL LVA SVN CAN DNK LUX AUT DEU EST

10

Source: OECD (2017), Entrepreneurship at a Glance.

27

Barriers to entrepreneurship are high Index scale of 0-6 from least to most restrictive, 2013 Barriers in services sector Admin. burdens for sole proprietor firms Spain

Admin. burdens for corporations

OECD Communication and simplification of rules and procedures Barriers to entrepreneurship - overall 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Source: OECD, Product Market Regulation Database.

28

Investment in knowledge-based capital is low Investment in knowledge-based capital % of business sector’s gross value added, 2015 30 Other KBC assets including organisational capital and training KBC assets in National Accounts including software and R&D 20

10

0

GRC SVK ITA ESP NOR DEU PRT GBR AUT HUN DNK FIN NLD FRA USA SWE IRL

Source: OECD (2017), Science, Technology and Industry Scoreboard 2017: The digital transformation.

29

Spending on R&D is low % of GDP 2016 or latest 4.5 4.0

Other sectors

Business sector

3.5 3.0 2.5 2.0 1.5

1.0 0.0

CHL LVA MEX SVK TUR GRC POL IRL ESP HUN LUX PRT NZL EST ITA CAN CZE GBR AUS SVN NLD NOR ISL FRA OECD BEL USA FIN DNK DEU AUT JPN SWE CHE KOR ISR

0.5

Source: OECD (2018), OECD Main Science and Technology Indicators (database).

30

Spanish firms lag in their use of key digital technologies Share of enterprises using cloud computing services 2016 60

40

0

POL LVA GRC HUN KOR DEU AUT FRA SVK PRT CZE ESP LUX ITA OECD AUS BEL CAN NLD GBR IRL NOR DNK ISL JPN SWE FIN

20

Source: OECD (2017), OECD Digital Economy Outlook 2017.

31

Recommendations for boosting productivity and internationalisation Boosting competition and reducing regulatory differences: 1. Eliminate the existing regulations that depend on the size of firms, as needed.

2. Regions should include the principle of national effectiveness of the Market Unity Law in their legislation.

3. Assess the compliance of new legislation at all levels of government with the principles of the Market Unity Law. Enhancing innovation: 4. Give the recently activated R&D Public Policy Network a strong mandate to further increase coordination of regional and national innovation policies.

5. Strengthen ex-post evaluation framework of innovation support and consider increasing performance based funding.

32

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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