Spain

Executive Summary

Spain is open to foreign investment and is actively seeking to attract additional investment. Spain enjoyed economic growth of at least three percent from 2015-2017, leading analysts to declare Spain’s recovery from the housing and financial crises of the past decade.  Although growth slowed in 2018 and 2019, Spain continued to notch solid growth rates of at least 2.0 percent, outperforming most other EU member states.  In 2019, Spanish GDP grew by 2.0 percent, and public debt fell to 95.5 percent of GDP, and unemployment dropped to 13.8 percent – the lowest level since 2008. In 2020, however, Spain’s economy has contracted dramatically as a result of the COVID-19 pandemic. Although a strong economic rebound is expected in 2021, but Spain’s economy will take several years to recover to pre-crisis GDP levels. Service-based industries, particularly those related to tourism, are most vulnerable to the economic shock. The Spanish government’s fiscal position will also deteriorate as the Spanish government deploys fiscal stimulus, expands unemployment benefits, and garners less tax revenues as a result of the crisis. Spain’s key economic risks are high public debt levels, ballooning pension costs for its aging population, and the duality of the labor market.

In spite of COVID-19’s shock to the economy and a corresponding spike in Spain’s already high unemployment rate, Spain’s excellent infrastructure, large domestic market and access to the European Common Market, well-educated workforce, and robust export possibilities remain draws for foreign investors. Spanish law permits foreign ownership in investments up to 100 percent, and capital movements are completely liberalized. According to Spanish data, in 2019, foreign direct investment flow into Spain was EUR 22.4 billion, 54.8 percent less than in 2018. Of this total, EUR 609 million came from the United States, the eighth largest investor in Spain in new foreign direct investment. Foreign investment is concentrated in the energy, real estate, finance and insurance, engineering, and construction sectors.

Since its 2008 financial crisis and subsequent fiscal and financial reforms, Spain’s access to affordable financing from international financial markets has increased, which has improved Spain’s credibility and solvency, in turn generating more investor confidence. Spain’s credit ratings were raised in 2018 and 2019, and Spanish issuances of public debt have been oversubscribed, reflecting strong investor appetite for investment in Spain. However, small and medium-sized enterprises (SMEs)—which account for more than 99 percent of Spanish businesses—still have some difficulty accessing credit and are likely to face additional hurdles as a result of the COVID-19 pandemic. Defaults on loans to both small businesses and consumers are likely to rise after steadily falling from their 2014 peaks.