- Catalonia is Spain's richest region – GDP is 18.8% above the Spanish average
- Catalonia already has many of the attributes of a successful independent state
- Services dominate but industry remains a key pillar of the Catalan economy
- Productivity is still a problem, and there's an over-reliance on low-skilled jobs
Catalans take to the streets in September, 2017, to assert their right to independence.
By Christopher Dembik
A few days ahead of the Catalan independence referendum, it is time to look at the economy of this Spanish autonomous region which is the main contributor to Spain’s GDP (about 18.9%) and whose GDP per capita (at PPP) is 18.8% higher than the Spanish average.
There is no miracle solution to determine if this region, once independent, would be economically viable but there are at least some distinctive features that are usually shared by successful developed economies. Usually, the country needs to have a diversified, internationalised economy with high productivity. Let us try to apply these criteria to Catalonia.
Diversified economy: Catalonia is a very well-diversified economy and displays a more balanced production structure than other Spanish regions. The size of the primary sector is relatively small. Services are clearly the dominant sector, as it is the case in all developed countries but it is also worth mentioning the share of gross value added (GVA) corresponding to industry is quite large compared with Spain and the rest of the EU.
After a sharp decline from 2009 to 2013 in the aftermath of the collapse of the real estate bubble, the industry has gained some momentum thanks to exports and seems in better position compared to years ago. Contrary to many other regions that suffered from deindustrialisation, industry remains a key pillar of the Catalan economy. Once called the «factory of Spain», Catalonia has also a very important manufacturing sector. The GVA corresponding to the manufacturing sector is about 16.7% versus 13.4% for Spain and 15.8% for the EU (data from 2015). In addition, the imbalances that led to the crisis have been corrected, especially in the construction sector that has finally returned to normal levels.
Source: Eurostat, Generalitat de Catalunya
Economic openness: Catalonia is a very internationalised economy with a trade balance surplus about 11.5% of GDP in 2015. This economic openness, along with the boom in the construction sector and the entry into the euro area, explains the economic miracle that took place from 1999 to 2008 and was characteriaed by average annual GDP growth of 3.7%. The EU is, obviously, the natural destination for exports (the top three trade partners are Germany, France and Italy) but Catalonia has also implemented a successful trade diversification which has been pushed forward during the European sovereign crisis. The result is rather convincing since the share of exports to non-EU countries (notably South America) has increased from 26.7% in 2000 to 35% in 2015.
Productivity: This is certainly the most lagging criteria for Catalonia, as it is for Spain. Although productivity increased in the aftermath of the crisis in Spain as a result of robotisation (Spain’s average annual productivity growth over the past decade has been higher than that of Germany, at 1.2% vs 0.7%), the country still has a long way to go before building an economic growth model based on innovation and knowledge, as demonstrated by Spain’s bad ranking on PISA studies.
However, Catalonia is probably one of the Spanish regions best placed to face this issue. In 2015, data from the Generalitat de Catalunya confirmed a strong jump in FDI (+60.4% versus +11% in Spain over the same period) which confirms greater attractiveness. The region has invested massively in the creation of a powerful research infrastructure in its universities but it has not succeeded yet in creating hubs like in Germany and Sweden where universities and the private sector collaborate to develop new innovations. In the private sector, the growth model still relies too often on low-skilled jobs, especially in the service sector or associated with tourism. They are low-productivity and will negatively impact potential GDP growth in the medium and long term.
Conclusion: After this fast examination of Catalonia’s economic situation, it can be said without hesitation that, only based on economic consideration and on the condition it remains in the EMU, the region would be viable as an independent country. Within the EU, an independent Catalonia would occupy the 13th place in a hypothetical EU29 ranking. Regardless of whether it chooses the road of independence or remains with Spain, Catalonia will need to invest further in human capital and education in order to avoid going back to its old ways and being dependent on low wages for economic growth.
— Edited by Clare MacCarthy