The paradoxical impact of war conflicts on the Spanish economy

Geopolitical tensions, and their exacerbation of war in the Middle East, in addition to the dramatic consequences for the population, are having a surprising impact on the Spanish economy. On the one hand, the bulk of the productive fabric suffers, as in the rest of Europe, from the climate of uncertainty that undermines confidence and makes it difficult for investment to take off, which is key to prolonging our expansionary cycle. The rise in the price of oil and maritime transport that passes through the regions close to the conflict complicates the path of disinflation, while eroding purchasing power.

On the other hand, global turbulence is accompanied by huge inflows of international investment, due to the attractive power of low labor and energy costs in relation to other economies in our environment. The recent announcements of positions in the technology, energy and automobile sectors are part of an underlying trend, given the volume of foreign capital invested in the equipment of Spanish companies, especially the large ones. corporations: in the last two years, foreign direct investment (excluding speculative financial capital) reached an average of 2.9% of GDP, a figure much higher than that observed in the other large community partners. Furthermore, Spain is a net importer of foreign capital, unlike Germany, for example, which exports a good part of its savings to equip companies in other countries—a folly for its industry, in the midst of reconversion.

That is to say, international investors reason globally, and in that comparison, Spain does not come out badly (uncertainties are similar throughout the continent, but we are far from the main conflict zones and production costs are favorable). In contrast, smaller Spanish companies are determined based on local conditions and other variables that affect the business climate in the domestic market. Among these burdens, the one that most affects investment is the traumatic memory of the financial crisis—a consideration far removed from the concerns of large international investors.

This duality is relevant for economic policy, first of all, because it shows that the investment deficit occurs above all in small and medium-sized businesses, and not so much in corporations with the capacity to attract foreign capital. In this regard, the recently announced company co-financing initiative, piloted by Cofides, is a step in the right direction since it aims to bring resources closer to strategic sectors, potentially benefiting intermediate-sized companies. The volume of resources of this fund (2,000 million euros, financed with Next Generation loans), however, seems insufficient to alleviate the investment drought. More decisive would be the financial union projected by Brussels with the aim of facilitating the mobility of savings to boost the European economy, but the project faces the vision of countries reluctant to regulatory and fiscal harmonization. We will see if Mario Draghi manages to smooth out the rough edges with his long-awaited diagnostic report on Europe’s position vis-à-vis the other great powers.

The formulation of a medium-term budgetary path would be another lever to unblock investment among the companies most affected by uncertainties and that, due to their size, cannot access international financing. The General State Budgets make up the main instrument of economic policy, and the perception of the degree of coherence of public action depends on them.

Paradoxical as it may seem, the volatility of the global environment is more harmful to Spanish SMEs than to international investors who continue to bet on our productive fabric. A dichotomy that tends to increase as the conflict in the Middle East perpetuates, if not spreads.