The main causes for concern among Spanish companies are supply issues, rising energy costs, uncertainty regarding economic policy, supply constraints, and the difficulty in finding labor. This conclusion is drawn from the Bank of Spain’s latest survey of Spanish companies for the first quarter.
It is important to highlight that the surveyed companies consider the slowdown in the growth rate—largely a consequence of all these concerns—to be temporary.
A few days ago, the Bank of Spain revised its economic forecasts for the next two years downwards by one percentage point, to 4.5% in 2023 and 2.9% in 2024. The monetary authority also alluded to a “temporary delay” in the process of convergence toward pre-pandemic GDP levels, although it also acknowledged the difficulty of making forecasts at this time.
The war in Ukraine, in addition to the terrible humanitarian crisis it has caused, also represents an economic shock that affects global growth prospects, including the Spanish economy.
An exogenous factor such as the war or the continuous rise in energy prices entails short-term restrictions on supply and demand, with greater uncertainty for the future. The response of companies must be to improve efficiency and productivity through reforms and by fostering greater production flexibility. In short, they must strengthen themselves in the face of uncertainty. Authorities, for their part, must create the appropriate conditions so that companies can carry out these adjustments.
Under the solid growth prospects that existed before the war, the most relevant task for authorities now is to create a climate of certainty for economic agents. Encouraging innovation has always been key to moving forward in any scenario. And this is precisely one of the objectives of the European funds: to achieve solid, digital, and sustainable growth. However, it is essential that they are used appropriately, which requires greater public-private coordination.
Only 9% of companies access the aid provided by the EU recovery funds, according to a recent study by KPMG. Continuing with the study’s conclusions, 80% of the companies that do access them are always the same ones. The general lack of knowledge about the funds and how to access them, combined with the difficulty of the procedures to receive and justify them, are the underlying reasons for their limited distribution.
The cooperation of everyone remains fundamental to recovering part of the certainty that companies need in times as complicated as the present. Proper management of European funds—ensuring they reach projects with real future prospects efficiently—is key to achieving this.
While banks guarantee favorable financing conditions to drive recovery, it is important that this is responsible financing, so that new risks that do not currently exist are not generated in the future.
One of the conclusions of the ECB’s latest European Bank Lending Survey is that there has been a tightening of credit standards for loans to companies—that is, all the actions taken by entities before approving a credit. European banks thus reflect their lower risk tolerance in the face of increased uncertainty about how the war in Ukraine may affect credit risk and expectations of a less accommodative monetary policy. The change in the ECB’s discourse regarding its monetary policy strategy also requires a period of adjustment in the financial markets.
However, greater caution in new financing does not mean that it is worsening. Spanish banks, for example, kept the general conditions of new loans unchanged despite instability in international financial markets. Bank financing remains key in times of uncertainty, as was also demonstrated during the pandemic.
The main determinants of business investment are the production capacity utilized, future expectations, and financing conditions. The first factor represents a short-term constraint that is difficult to overcome, and it is also not easy to overcome uncertainty, although measures can be taken to minimize it. However, bank financing will not be added to these obstacles. Despite the expected decline in demand for financing in the coming months, the banking sector has the strength and resources to guarantee the financing that companies need to move forward and make their projects a reality.
José Luis Martínez Campuzano, Spokesperson for the Spanish Banking Association
