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The ISA March 2023 Spain Country Report1ISA March 2023 Country ReportSpain

The ISA March 2023 Spain Country Report2Spain: Key Facts•Spain was the world's leading colonial, economic and military power in the 16th and 17th centuries.•However, economic exhaustion resulted from numerous wars and Spain failed to develop trade and industry along the lines of other European powers, resulting in a major decline in wealth and influence.•The Spanish Civil War from 1936 to 1939 resulted in the 36-year Franco dictatorship.•Democracy was restored in the late 1970s and Spain became a member of the European Union in 1986.•Spain'sminorities are pushing for greater autonomy or outright independence, particularly in Catalonia and the Basque Country.•Since the return to democracy, Spain has enjoyed some of West Europe'shighest economic growth rates, but also some of its highest rates of unemployment.Overview: Key Facts and Data: •Official Name-Kingdom of Spain•Capital-Madrid•Government Type-Parliamentary monarchy•Head of State-King Felipe VI (since 2014)•Head of Government-Prime Minister Pedro Sanchez (since 2018)•Population-47,538,000•Land Area-499,542 sq. km•Total GDP (US$)-$1.4 trillion•Per Capita GDP at PPP (US$)-$46,551•Currency-Euro

The ISA March 2023 Spain Country Report3Table of Contents•Recent Political Events•Recent Economic Events•Other Recent EventsCurrent Events: Economic Outlook: •Economic Overview•GDP Growth Forecasts•Key Sector Forecasts•Inflation Forecasts•Foreign Trade Forecasts•Foreign Investment Forecasts•Exchange Rate Forecasts•Outlook for Key Sector•Key Economic Issues•Economic Risk Outlook•Overview of the Current Government•Leadership Profile•Summary of the Most Recent Elections•Leading Political Parties•Forecast for the Next Elections•International Relations Outlook•Potential Conflicts•Military Capabilities•Key Political Issues•Political Risk OutlookPolitical Outlook: •Population Overview•Population Characteristics•Development of Leading Urban Centers•Key Demographic Issue•Topography and Climate Overview•Environmental Threat Summary•Key Environmental Issues•Demographic and Environmental Risk OutlookDemographic & Environmental Outlook:

The ISA March 2023 Spain Country Report4Current Events and Recent Changes Overview

The ISA March 2023 Spain Country Report5Spain: Recent Political Events and Changes•Recent polls showed that Prime Minister Sanchez's Socialist Party (PSOE) remained the most popular political party in Spain. However, its lead over the conservative People's Party (PP) and the hard-right Vox party had narrowed in recent months. The far-left Podemos party was in fourth place among voters.•In February 2023, the far-right Vox party filed a motion of no-confidence against Prime Minister Sanchez.•A series of letter bombs were sent to high-profile Spanish political leaders, including Prime Minister Sanchez. Eventually, an elderly man from northern Spain was arrested in connection with these letter bombs.•In February 2023, Spain and Morocco agreed to put aside their historical differences over the Western Sahara and to repair their bilateral relationship. This followed a visit to Morocco by Prime Minister Sanchez.Key Political Events and Changes:

The ISA March 2023 Spain Country Report6Spain: Recent Economic Events and Changes•Economic growth in Spain slowed to 2.7% on a year-on-year basis (0.2% quarter-on-quarter) in the fourth quarter of 2022.•Exports from Spain increased by 23.0% in 2022. However, the country's trade deficit rose to its largest share of GDP since 2009.•The government introduced plans to spend an additional €10 billion ($10.6 billion) in aid for people in Spain that are suffering from the impact of rising prices.•Spain's inflation rate rose to 5.9% year-on-year in January 2023. This gave Spain the lowest rate of inflation in the European Union.•In February 2023, the European Central Bank (ECB) carried out another 50-basis-point interest rate hike, raising interest rates to 3.0%. Furthermore, the ECB signaled that it was prepared to enact additional interest rate hikes in the coming months.•Spain's unemployment rate rose to 13.1% in December 2022. This remained the highest rate of unemployment in the European Union.Key Economic Events and Changes:

The ISA March 2023 Spain Country Report7Spain: Other Recent Events and Changes•Spain experienced extremely mild winter weather, continuing a run of above-average temperatures for Spain in recent months.•In February 2023, the parliament approved a law that will allow people over the age of 16 to change their legally-recognized gender without medical evaluation.Other Key Events and Changes:

The ISA March 2023 Spain Country Report8Spain Political Outlook

The ISA March 2023 Spain Country Report9Spain: Current Government•The center-left Socialists and far-left Podemos party agreed to form a coalition government in the wake of late 2019's parliamentary elections. As these two parties do not hold a majority of the seats in the parliament, they will rely on regional parties to pass any legislation.•In January 2020, Catalonia's largest separatist party, the ERC, agreed to back a new coalition government. Afterwards, the parliament approved this new government, but by the narrowest of margins after it failed to win the approval of two-thirds of the lawmakers in an earlier vote. This became the first coalition government in Spain in modern times.•After nearly forty years as the head of Spain's monarchy, King Juan Carlos abdicated in June 2014. King Juan Carlos ascended to the throne in the final year of the dictatorship of General Francisco Franco and ignored the dictator's wishes and allowed for Spain to become a full-fledged democracy. However, the king's popularity had fallen sharply due to a number of scandals surrounding the royal family as well as a controversial hunting trip to Botswana by the king in 2012. His son, Crown Prince Felipe, ascended to the Spanish throne in June 2014 as King Felipe VI.Overview: Key Members of the Government: •Head of State-King Felipe VI•Head of Government-Prime Minister Pedro Sanchez (PSOE)•Minister of Foreign Affairs-Jose Manuel Albares(PSOE)•Minister of Finance-Maria Jesus Montero (PSOE)•Minister of the Presidency-Felix Bolanos (PSOE)•Minister of Defense-Margarita Robles (independent)•Minister of the Interior-Fernando Grande-Marlaska(independent)•Minister of Justice-Pilar Liop(PSOE)•Minister of Economic Affairs and Digital Transformation-Nadia Calvino (independent)

The ISA March 2023 Spain Country Report10Profile of Prime Minister Pedro SanchezSocialist leader Pedro Sanchez became Spain's prime minister after his predessor, Mariano Rajoy, was ousted from that position in a no-confidence vote in the parliament in June 2018.•Sanchez became the head of the Socialists (PSOE) in 2014 and led them to defeat in two successive parliamentary elections in 2015 and 2016.•Nevertheless, he managed to retain his leadership of the party, despite numerous defections and calls for his ouster.•His persistence paid off as he was able to take control of a minority government in 2018.Background: Since taking control of the Socialist Party, Prime Minister Sanchez has been forced to deal with the rise of the Podemos party on the political left and Ciudadanos in the center.•As prime minister, he has sought to rebuild his party's support by calling for an expansion of the country's social welfare programs.•In addition, he has moved to weaken the influence of the Roman Catholic Church, in part, by promoting more socially liberal policies.Key Policies and Stances:

The ISA March 2023 Spain Country Report11Spain: Most Recent ElectionsParliamentary Elections -November 2019In November 2019, Spanish voters went to the polls to vote in parliamentary elections for the fourth time in the past four years.•This was due to the fact that the elections that had taken place just seven months earlier had produced a hung parliament that led to the Socialists being unable to form a new government.In November 2019's early elections, the governing Socialist Party won the largest share of the vote in these elections.•The Socialists won 120 of the 350 seats in the parliament, just three less than in that year's earlier elections.•The center-right People's Party made significant gains, winning 89 seats in the parliament, but this was still a far cry from their performance in previous years.•The far-right Vox party emerged as a major player in Spanish politics in these elections, finishing in third place with 52 seats.•Meanwhile, the centrist Ciudadanosparty suffered major losses, losing 47 of their 57 seats in the parliament and winning just 6.8% of the popular vote.Summary of the Last Elections: Results: 050100150OthersBasque partiesCatalan partiesCiudadanosUnidas PodemosVoxPeople's PartySocialistsSeats Won in the Parliament20162019 (1)2019 (2)Source: National election authority

The ISA March 2023 Spain Country Report12Spain's Leading Political Forces:Spanish Socialist Workers'Party (PSOE)Recent Electoral Performances: The Socialists are the dominant political force on Spain's political left.•The party has won the largest share of the vote in each of the country's past two national elections.•However, the party has lost support to rivals on its left and centerin recent years.History: •The PSOE is attempting to move its policies and image more to the political centerin order to regain lost voters.•The party favorscloser ties with Spain's European neighbors.•The party has lessened its support for state intervention in the economy in recent years.•The Socialists oppose the Roman Catholic Church's high level of influence in Spain.Key Policies and Stances: The Socialists may be the leading party in Spain at the moment, but their leading position on Spain's political left is being threatened by the far-left Podemos party.•It remains to be seen if the party can re-establish its dominance of the political left in Spain.Outlook: 0%5%10%15%20%25%30%35%40%45%50%1982198619891993199620002004200820112015201620192019Share of Vote in Recent ElectionsSource: National election authority

The ISA March 2023 Spain Country Report13Spain's Leading Political Forces:People's Party (PP)0%5%10%15%20%25%30%35%40%45%1982198619891993199620002004200820112015201620192019Share of Vote in Recent ElectionsRecent Electoral Performances: The People's Party was formed in the early 1980's following the dissolution of the ruling UDC party.•Since 1982, the People's Party has consolidated its leading position on Spain's political right.•In recent years, the People's party has seen its support fall sharply due to a series of scandals and the rise of new political parties.History: •The People's Party has pushed for a stronger role in world and European affairs for Spain.•The People's Party has also taken a tough stance against Catalan and Basque separatists.•The party has also focused on stamping out corruption and unemployment, but has struggled to make inroads on either issue.•The party has supported major cuts in government spending in order to improve Spain's financial health.Key Policies and Stances: The People's Party has lost some of its support in recent years and it remains to be seen if the party can regain its momentum.•Furthermore, the fragmentation of Spanish politics could result in the People's Party struggling to return to the levels of support it once enjoyed.Outlook: Source: National election authority

The ISA March 2023 Spain Country Report14Spain's Leading Political Forces:We Can (Podemos)Recent Electoral Performances: The Podemos party was founded in 2014 in the wake of massive anti-austerity protests that had rocked Spain in the wake of the country's economic crisis.•The party was founded by Pablo Iglesias, a left-wing political scientist who continues to lead the party.•Podemos won control of many local governments in recent years, but has lost some support in recent years.History: •Podemos favorsgreater government control of the Spanish economy and higher levels of spending on social welfare programs.•The party favorsmany wealth redistribution programs aimed at reducing the level of inequality in Spain.•Podemos is opposed to most free trade agreements and supports a greater level of protection of Spain's key industries and economic sectors.Key Policies and Stances: In a short period of time, Podemos has managed to win control of the far-left of Spain's political spectrum.•After its success in Spain's most recent elections, the party is now in a strong position to challenge the Socialists for the leadership of Spain's political left.Outlook: 0%5%10%15%20%25%1982198619891993199620002004200820112015201620192019Share of Vote in Recent ElectionsSource: National election authority

The ISA March 2023 Spain Country Report15Spain's Leading Political Forces:Citizens (Ciudadanos)Recent Electoral Performances: The Ciudadanosparty was formed in Catalonia in 2006 and remained a regional party for much of its early history.•The party emerged on the national scene in recent years and has become a leading centrist force in Spain.•The party won more than 13% in three straight national elections, before falling sharply in the latest national elections.History: •The Ciudadanosparty is in favorof shrinking the size of the public sector in Spain.•On the economic front, the party favorslower (and more simplified) taxes for Spanish citizens and corporations.•The party has taken a strong stance against corruption in the public sector in Spain.Key Policies and Stances: The Ciudadanosparty now faces a question regarding its future following its loss of support in the second national elections in 2019.•Much of the party's future depends on whether or not the People's Party can regain the support that it has lost in recent years.Outlook: 0%2%4%6%8%10%12%14%16%1982198619891993199620002004200820112015201620192019Share of Vote in Recent ElectionsSource: National election authority

The ISA March 2023 Spain Country Report16Spain: International Relations OutlookKey International Disputes: •The number of immigrants from North Africa could dramatically increase in the coming years.•Growing nationalism in Morocco will threaten Spain's enclaves there.•Gibraltar will continue to sour relations with the United Kingdom, but not to the point of conflict.International Relations Outlook: •Relations with North Africa will continue to grow in importance, with immigration and terrorism looming as major risks to Spain's future security.•Spain will continue to cultivate ties with its former colonies in the Americas.

The ISA March 2023 Spain Country Report17Potential Conflict: MoroccoMain Disputes: •Spain controls a number of islands and toeholds along Morocco's Mediterranean coast, with Morocco often claiming these territories as its own.•Many Spanish people are opposed to the large number of African migrants that reach Spain via Morocco.•Moroccan troops briefly took over the tiny Spanish-claimed island of Leila (Perejil), before it was quickly retaken by Spanish forces.Best-and Worse-Case Scenarios: •Best Case Scenario-Spain and Morocco work together to deal with immigration and terrorism.•Worst-Case Scenario-A war breaks out over the Spanish enclaves in Northern Morocco.

The ISA March 2023 Spain Country Report18Foreign Relations: The Spanish EmpireMap: Current and Former Spanish Territory and Colonies

The ISA March 2023 Spain Country Report19Military SpendingStrengths and Weaknesses Spain has easily to smallest armed forces of Europe's larger powers.•For example, Spain's military budget is less than one-fifth of that of the United Kingdom.•Moreover, Spain has little capacity to project military power outside of its immediate region.Outlook Threats from North Africa will be the focus of the Spanish military in the 21stcentury.•At present, Spain's military capabilities far exceed those of Morocco.•However, demographics and economic development will likely narrow this gap in the coming decades.Spain's role within NATO and the European Union will become more important as those organizations refocus their attention towards dealing with potential security threats stemming from North Africa. •This will lead to calls to drastically increase military spending in the future.010203040506070PortugalMoroccoAlgeriaSpainItalyGermanyFranceUKTotal Military Spending (US$ bil.)Source: SIPRI

The ISA March 2023 Spain Country ReportSpain: Security RiskSummary20Crime-Related Risks•Crime rates in nearly all areas of Spain are relatively low by global standards.•The greatest crime-related risk to business travelers and tourists comes from the threat of property theft.Conflict and Stability Risks•Spain faces nearly no external threat to its security and stability at this moment.•In some areas of Spain, most notably Catalonia, separatist movements have carried out massive protests in recent years.•Terrorism remains a notable risk in Spain's largest cities.Health and Natural Risks•Spain faces few major health and natural risks.•Spain's healthcare system is among the best in the world.•Drought and heatwaves are the most significant natural risks facing Spain at the moment.

The ISA March 2023 Spain Country ReportSpain: CybersecuritySummary21Spain, like most European countries, is facing a growing threat in the realm of cybersecurity. Fortunately, the country has improved its preparedness for this risk in most areas in recent years. Looking ahead, the threat from cyberattacks is likely to worsen in the years ahead, forcing the public and private sectors in Spain to devote more resources to dealing with this growing threat.

The ISA March 2023 Spain Country Report22Spain: Political Risk Outlook•Spain faces some of the highest political risk levels of the major European Union countries.•These high risk levels are the result of Spain's less-than-complete unity as well as the continuing threat posed by terrorism and migration. •Moreover, disputes over territory with the United Kingdom and Morocco could worsen in the coming years, further adding to these risk levels.Current Political Risk Ratings: 012345678910TerrorismGlobal ConflictRegional ConflictLess Central AuthorityExtremist InfluenceInternal ConflictRisk MeasurementsLow Risk..................High RiskPolitical Risk Outlook: ISA Risk Ratings-0.0 to 1.9 = Low Risk-2.0 to 3.9 = Low to Moderate Risk-4.0 to 5.9 = Moderate Risk-6.0 to 7.9 = Moderate to High Risk-8.0 to 10 = High Risk

The ISA March 2023 Spain Country Report23Spain Economic Outlook

The ISA March 2023 Spain Country Report24Spain: Economic OverviewPrior to the country's severe economic crisis, the Spanish economy had made great strides in terms of narrowing the wealth gap with West Europe's other large economies.•Thanks to a construction boom, Spain's economy grew at a healthy clip and the country was the main generator of new jobs in West Europe.The global financial crisis in 2008 and the collapse of Spain's construction sector had a devastating impact on the Spanish economy.•Spain suffered a severe recession and some of the world's highest rates of unemployment in the wake of the crisis.•This crisis forced the Spanish government to enact major reforms and spending cuts in order to boost the country's economic competitiveness, a process that allowed the country to return to growth in recent years.Spain's long-term economic future will be determined by its ability to develop new high-tech, high-growth sectors of the economy.•At present, relatively few Spanish companies are major players in the world economy and this will pose a threat to Spain long-term economic health.Economic Summary: Economic Performance Comparisons: Per Capita GDP at PPPAvg. Annual GDP Growth 2017-2021FranceGermanyUKItalySpainHolland0%1%2%40,00070,000Regional Economic Growth ComparisonsSize of the circle represents the size of the economySource: ISA Economic Forecasts

The ISA March 2023 Spain Country Report25Spain: Wealth ComparisonsPer Capita GDP at PPP (US$) $0$20,000$40,000$60,000$80,000MoroccoPortugalPolandSpainItalyUKFranceUnited StatesPer Capita GDP at PPPSpain is expected to continue to close the wealth gap with other West European economies in the coming years, although wealth discrepancies will remain significant between the richer and poorer regions of Spain.Key Wealth-Related Issues and Trends Spain has made major strides in recent decades in closing the wealth gap with the rest of West Europe.Spain's economic crisis from 2009 to 2014 resulted in Spain losing ground to most other developed economies.Meanwhile, some areas of Spain remain very poor, particularly in the south of the country.Source: IMF

The ISA March 2023 Spain Country Report26Spain: Internal Wealth ComparisonsPer Capita GDP at PPP (US$) The wealth gap between northern Spain (and Madrid) and southern Spain are one of the leading factors that divide Spain. Worse, this wealth gap has shown little signs of diminishing, as growth remains concentrated in a few areas of the country.Internal Wealth-Level ComparisonsWealth discrepancies in Spain are among the highest of any country in the European Union.Wealth in Spain is concentrated in northern areas of the country, as well as in the Madrid region.Meanwhile, areas of southern Spain are among the poorest of any region of the European Union.

The ISA March 2023 Spain Country ReportSpain: Households by Income ClassIncome Classes•Spain created a large middle class and reduced poverty levels in the 1990s and 2000s.•Spain's recent economic travails have resulted in slower growth for the country's wealthier classes in recent years.Income Class ClassificationsClass A: Upper Income ClassClass B: Upper-Middle Income ClassClass C: Middle Income ClassClass D: Lower-Middle Income ClassClass E: Lower Income Class272,028,5204,895,7556,105,0654,954,2701,521,3902,239,4684,904,6205,607,9244,367,8881,388,10002,000,0004,000,0006,000,0008,000,000Class EClass DClass CClass BClass AHouseholds by Income Class20202025Source: ISA Income Class StudyKey Points

The ISA March 2023 Spain Country Report28Keys to Economic Growth in SpainThe Pace of Economic ReformKey FactorsAttracting Foreign Investment in the Face of Increasing International CompetitionThe Recovery of the Country's Banking and Construction IndustriesThe Share of Foreign Ownership of the Spanish EconomyThe longer-term outlook for the Spanish economy calls for lower rates of growth due to the lingering weakness of the country's domestic market.Many sectors of the Spanish economy continue to struggle to recover from the recent economic crisis. In addition, Spain is struggling to develop more modern industries and to attract major foreign investment in new industries, something that will dampen long-term economic growth forecasts.

The ISA March 2023 Spain Country Report29Spain: GDP Growth Outlook•Spain'seconomy suffered greatly as a result of the impact of the Covid-19 pandemic on most of its key sectors, resulting in the worst recession in decades.•Since then, the Spanish economy has managed to stage a modest recovery, thanks in large part to the country's resurgent service sectors, including the country's tourism sector.Chart: GDP Growth Rates 201320142015201620172018201920202021202220232024202520262027%-1.41.43.83.03.02.32.1-10.85.14.50.51.82.32.21.6-12-10-8-6-4-20246Annual GDP Growth Rate (%)Current Outlook: •Spain'seconomic recovery is being jeopardized by soaring inflationary pressures and Europe's economic downturn.•While economic growth will continue, sustaining pre-crisis levels of growth will prove difficult in the years ahead.Future Outlook: Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country ReportSpain: Long-Term Economic OutlookSummaryCharts: Long-Term Economic Growth30Spain's economic performance over the past few years has been marked by a high degree of volatility.•Between 1986 and 2007, the Spanish economy expanded by an average of 3.5% per year, enabling the country to reduce the once-considerable wealth gap with West Europe's other large economies.•However, Spain's economic output now is no larger than it was in 2008, due to a series of economic crises that have befallen the country since that time.Spain is likely to find it much harder to generate higher rates of economic growth in the coming years than it did in previous decades.•Spain will need a much higher level of immigration as its demographic situation is among the worst in the world.•Most sectors of the country's economy are becoming more dependent upon export markets to generate growth as opportunities on the domestic market are increasingly limited.•Productivity growth rates in Spain have been trending downwards and the country will need to develop more high-tech sectors of the economy to reverse this trend.0.00.51.01.52.02.53.01980s1990s2000s2010s2020s2030sAverage Annual GDP Growth Rate by Decade (%)0.00.51.01.52.0FranceSpainGermanyUKUSA20-Year Average Annual GDP Growth Forecasts (%)

The ISA March 2023 Spain Country ReportISA Economic Competitiveness Rankings: Developed EconomiesSummaryOn average, most developed economies enjoy a higher level of economic competitiveness than most of their emerging market rivals. However, this advantage has been eroded in recent decades by improved competitiveness in emerging markets in places such as Southeast Asia and Central Europe, as well as by a declining competitiveness in many traditional developed economies.The United States remains the world's most-competitive large economy due to the size of its market, its position in high-tech industries and its ability to attract investment and talent from around the world. Other highly-competitive developed economies include smaller northern European economies and tech-driver East Asian economies.With economic and demographic growth slowing in most developed economies, maintaining a sufficient degree of economic competitiveness is likely to prove highly challenging in the decades ahead.Takeaways•Economic competitiveness will determine the success or failure of most developed economies in the coming years.•Governments that fail to address competitiveness will see their countries struggle to generate economic growth.13121717171818171919182036526875987841371010101011991213119131412101213913141211811131312131312131315111112124534787789899810100102030405060708090ItalySaudi ArabiaSpainJapanFranceCanadaUKGermanyAustraliaSouth KoreaNetherlandsUSAISA Economic Competitiveness ScoresDeveloped EconomiesBusiness EnvironmentGrowth ProspectsGovernment InfluenceEconomic InfrastructureInvestment AttractivenessEconomic PerformanceWealth Levels

The ISA March 2023 Spain Country Report32Spain: Key Economic SectorThe Automotive IndustryForeign investment has turned Spain into one of the most important automotive production locations in Europe.•The leading investors in Spain's automotive industry are Volkswagen, Ford and Peugeot.•Numerous other automotive companies also have a manufacturing presence in Spain.Spain faces a major threat from the emergence of Central and East Europe's automotive industry.•That region is receiving the bulk of the current investment in Europe's automotive industry.•Spain will find it difficult to win new investments and may lose existing ones.Summary: Spain's automotive industry has survived the recent troubles of the European automotive market in much better shape than countries such as France or Italy.•Nevertheless, the fact that most of Spain's automotive industry is in foreign hands means that the future of the industry in Spain remains uncertain.Outlook: 420,755439,421795,856932,4881,000,0001,111,4321,351,3081,566,3172,098,1333,308,69294,000347,9752,120,8501,565,9570242,0003,768,9931,950,0002,053,3504,976,55202,000,0004,000,0006,000,000RomaniaPolandItalyUKSlovakiaCzech Rep.FranceRussiaSpainGermanyMotor Vehicle Production in Europe19902021Source: OICA

The ISA March 2023 Spain Country Report33Spain: Key Economic SectorTourismSpain is the leading tourist destination in Europe and one of the world's leading destinations for tourists.•Most of Spain's tourism in located along the east and south coasts, as well as in the country's Atlantic and Mediterranean islands.•The largest amount of tourists to Spain come from Germany and the United Kingdom.Tourism continues plays a significant role in the Spanish economy.•It was a key driver of the dynamic growth of the previous two decades.•It is also a key factor in maintaining the country's current account balance.Summary: With the tourism industry continuing to expand, Spain stands to earn additional tourism revenues in the coming years, helping to fuel further economic growth. •The political unrest in North Africa has provided an additional boost for the Spanish tourism industry in recent years.Outlook: 020406080PortugalAustriaGermanyItalyUKFranceSpainEuropean Tourism Receipts (US$ billion)Source: UNWTO

The ISA March 2023 Spain Country Report34Spain: Industrial Production Growth Outlook•Industrial output collapsed during the country's economic crisis earlier in the decade as export demand fell sharply.•Prior to the Covid-19 pandemic, Spain's industrial output had recorded modest growth.Chart: Industrial Production Growth Rates 201320142015201620172018201920202021202220232024202520262027%-1.81.63.41.02.70.80.3-11.25.51.02.11.51.20.50.2-14-12-10-8-6-4-202468Annual Industrial Production Growth Rate (%)Current Outlook: •Industrial production growth will trend downwards over the course of the forecast period.Future Outlook: Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country Report35Spain: Retail and Consumer Market OverviewChart: Retail Sales GrowthChart: Disposable Income 2012201320142015201620172018201920202021%-7.3-3.91.03.73.02.11.81.6-7.44.9-10.0-8.0-6.0-4.0-2.00.02.04.06.0Retail Sales Growth RatesSource: ISA Economic Forecasts, national statisticsSpain's retail sector suffered some major losses during the country's recent economic crisis. While growth has returned to the retail sector in recent years, Spanish purchasing power levels remain well behind those of most other developed economies.

The ISA March 2023 Spain Country Report36Spain: Leading Economic Centers•Madrid and Barcelona are the two dominant economic centersin Spain, accounting for a combined 36% of the country's total economic output.•Spain is home to a large number of mid-sized economic centers, led by Valencia, Sevilla and Bilbao.•Many of the country's fastest-growing economic centersare found in the main tourist regions of the country.Chart: Metropolitan Area GDPSummary: 050100150200250300350A CorunaZaragosaMalagaMurcia-CartagenaAlicanteBilbaoSevillaValenciaBarcelonaMadridMetropolitan Area GDP (Bil. US$)Source: ISA Market Data Study

The ISA March 2023 Spain Country Report37Spain: Inflation Outlook•Spain dealt with serious deflationary pressures on a number of occasions in recent years.•However, inflationary pressures arose in 2021 and 2022, driven by soaring energy prices.Chart: Inflation Rates Current Outlook: •Over the near-term, inflation rates will remain uncomfortably-high.•Over the longer-term, inflation rates are forecast to trend downwards, with the threat of deflation returning later in the forecast period.Future Outlook: 201320142015201620172018201920202021202220232024202520262027%1.4-0.2-0.5-0.22.01.70.7-0.33.19.25.02.62.01.50.9-2.00.02.04.06.08.010.0Annual Inflation Rate (%)Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country Report38Cost of Living Comparisons

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Cost of Living (London = 100)

Living costs in Spain rose sharply during the country's period of rapid economic growth. Nevertheless, these living costs remain well below those of most other areas of West Europe, making Spain an attractive location for foreign investors basing their investment planning on costs.Global Cost of Living Comparisons

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Regional Cost of Living Comparisons Source: US State Department

The ISA March 2023 Spain Country Report39Spain: Foreign Trade OverviewChart: Current Account Balance Chart: Leading Trade Partners -0.50.00.51.01.52.02.53.03.5201320142015201620172018201920202021202220232024202520262027Current Account Balance (% of GDP)Spain's previous economic crises were caused, in part, by a loss of export competitiveness. While export competitiveness in Spain has recovered, Spanish exporters remain dependent upon European export markets, which means that growth opportunities will be limited.Source: ISA Economic Forecasts, national statistics0%20%40%60%MoroccoChinaUSAUKEUPercentage of Total Exports0%10%20%30%40%50%MoroccoUKUSAChinaEUPercentage of Total Imports

The ISA March 2023 Spain Country Report40Imports in Spain200820092010201120122013201420152016201720182019202020212022Total Imports497.2356.8384.3433.5390.1394.4416.7367.0370.8413.8460.6462.5370.0429.2442.10100200300400500600Total Value of Imports (bil. US$)Import growth slowed dramatically in previous years as a result of Spain's economic troubles and the sharp fall in consumer confidence. Import demand has rebounded in recent years, but import levels remain below their pre-crisis highs.Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country Report41Spain: Foreign InvestmentForeign investment in Spain was the catalyst for the country's rapid economic growth in the 1980s and 1990s.•Foreign investment in Spain was concentrated in the tourism and manufacturing sectors.•Most of this foreign investment came from other member states of the European Union.The legacy of this foreign investment is the fact that much of the country's industrial base is now under foreign control.•This is a major long-term risk for the Spanish economy, as was evidenced by the sharp fall in foreign investment in Spain in recent years.Chart: FDI Inflows Foreign Investment Climate: Foreign investment in Spain is threatened by the expansion of rival markets that have distinct advantages over Spain in terms of cost and location. •With little investment in high-tech sectors, Spain's manufacturing investments are at risk from lower-cost foreign competition, placing a number of Spanish industries at risk.Outlook For Future Foreign Investment: Source: UNCTAD201020112012201320142015201620172018201920202021US$39,87328,37925,69628,35522,6008,55931,56941,96657,46317,4175,6789,777010,00020,00030,00040,00050,00060,00070,000FDI Inflows (mil. US$)

The ISA March 2023 Spain Country ReportForeign Investment in West Europe05,00010,00015,00020,000ItalyFranceSpainGermanyUKPortugalBelgiumSwedenIrelandLuxembourgAverage Annual Per Capita FDI Inflows (US$) 2017-2021Foreign investment continues to pour into a number of northern European economies, led by Ireland, Germany and the United Kingdom. In contrast, foreign investment levels in southern Europe are much smaller and have trended downwards in recent years.010,00020,00030,00040,00050,00060,000PortugalLuxembourgItalySwedenBelgiumFranceSpainGermanyUKIrelandAverage Annual FDI Inflows (mil. US$)2017-2021Source: UNCTAD

The ISA March 2023 Spain Country Report43Spain: Labor ForceSpain's unemployment rate remains one of the highest in the European Union.•The country's economic crisis helped push unemployment rates in recent years to more than 20%, before they trended downwards in recent years.•Worse, a high percentage of young Spanish adults are unemployed as firms struggle to let go of existing staff and have no room for new employees.•This unemployment crisis led to drastic calls for reforming the country's laborlaws in the face of entrenched interests.Chart: Unemployment RateLabor Force Overview: Spain's unemployment rate is set to remain among the highest of any developed country over the course of the forecast period.•However, looking much further ahead, Spain's demographic decline could lead to laborshortages in the long-term.Outlook For the Labor Force: 201320142015201620172018201920202021202220232024202520262027%26.124.422.119.617.215.314.115.514.812.712.912.812.312.012.2051015202530Unemployment Rate (%)Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country Report44Spain: Labor CostsChart: Hourly Labor CostsChart: Change in Labor Costs-1012345678201320142015201620172018201920202021202220232024202520262027Annual Change in Unit Labor Costs (%, year-on-year)0.0010.0020.0030.0040.0050.00RomaniaPortugalPolandSpainUKItalyFranceGermanySwitzerlandBelgiumHourly Labor Costs in Europe (in US Dollars)Spain's labormarket remains an attractive factor for manufacturers in Europe, as laborcosts in Spain remain much lower than in most other West European countries. In recent years, laborcosts have risen significantly, despite the fact that unemployment levels in Spain remain among the highest in Europe.Source: OECD, ILO, ISA Economic Forecasts

The ISA March 2023 Spain Country Report45Eurozone: Exchange RatesChart: Exchange Rate with the Euro Chart: Exchange Rate with the US Dollar 0.600.650.700.750.800.850.900.951.00201320142015201620172018201920202021202220232024202520262027Value of One US Dollar in Local Currency0.600.700.800.901.001.101.20201320142015201620172018201920202021202220232024202520262027Value of One Euro in Local CurrencyAfter a prolonged period of relative strength in the late 2000s and early 2010s, the euro has remained relatively weak in recent years, providing a much-needed boost for exporters in the Eurozone. Looking ahead, the euro is forecast to remain relatively weak against the US dollar and some other major currencies in the coming years.Source: ISA Economic ForecastsSource: ISA Economic Forecasts

The ISA March 2023 Spain Country Report46Spain: Domestic Consumer Market OutlookConsumer Market Overview:Spain is home to one of the fastest-growing consumer markets in West Europe, propelled by the large gains in purchasing power made by Spanish consumers over the past three decades. Nevertheless, many areas of Spain remain poor, with much lower levels of purchasing power than Madrid or Barcelona.Consumer Market in the Region:Consumer Attitudes:Consumer attitudes in Spain have changed markedly in recent decades and now are much more closely aligned with those of other countries in the region.Domestic Consumption Patterns and Trends:Consumption levels have risen sharply, propelled by rising wages.Domestic Consumer Market Outlook:Consumer market growth in Spain will stabilize in the coming years, although poorer areas of the country could still realize healthy growth rates.Source: Eurostat

The ISA March 2023 Spain Country Report47Fiscal Policy Overview•The government's fiscal deficit soared to unprecedented levels during the Covid-19 pandemic, when tax revenues collapsed and government spending levels soared.•Moreover, the government's struggle to convince regional governments to cut spending hampered its ability to reduce the country's fiscal deficit until recently.Chart: Fiscal BalanceCurrent Outlook: •The government's fiscal deficit will remain rather large over the near-term.•Only later in the forecast period will this deficit be reduced to more manageable levels/Future Outlook: 201320142015201620172018201920202021202220232024202520262027%-7.5-6.1-5.3-4.3-3.1-2.6-3.1-10.3-6.9-5.3-4.9-4.4-4.0-3.6-4.1-12-10-8-6-4-20Fiscal Balance (% of GDP)Source: ISA Economic Forecasts, national statistics

The ISA March 2023 Spain Country Report48Largest Companies in SpainLeading Companies: Relatively few Spanish company rank among the world's largest companies.•This is despite the fact that Spain in the world's 14thlargest economy.•As a result, much of Spain's economy remains in the hands of large foreign companies.Most Spanish companies are focused on serving the domestic market.•However, in recent years, many Spanish companies have made major investments in Latin America and that region could provide a few Spanish companies the opportunity to develop into much larger enterprises in the future.Outlook for Domestic Companies: Given the share of foreign ownership of the Spanish economy, the government will do whatever it can to keep Spain's remaining large enterprises in domestic hands. •Meanwhile, Spain's ties with Latin America could prove decisive for a number of Spanish companies in the future.020406080CaixaBankMapfreNaturgyInditexACSBBVAIberdrolaTelefonicaRepsolSantanderTop Ten Companies by Turnover (US$ bil.)Source: Forbes

The ISA March 2023 Spain Country Report49Forecast Assumptions and RisksAssumptions: Risks: Long-Term RepercussionsSpain's economy will continue to struggle to fully recovery from the Covid-19 pandemic and other crises that have befallen the country so far in the 21stcentury.Long-Term DeclineSpain's uncertain demographic situation and its lack of investment in high-tech, high-growth industries could result in the long-term decline of the Spanish economy.Inflationary Pressures Remain, But Ease SlightlyInflation rates are forecast to remain well above their previous norms from the past four decades. However, for most major economies, inflation rates will gradually trend downwards in the months ahead.Global Economic Growth SlowsThe global economy will record slower growth over the near-term, as many major economies experience either a relatively-mild recession or a period of sluggish growth.Global RecessionThe potential for a severe global recession remains in place and should it occur, it would be the second major recession in the past four years, something not seen since the 1930s.Conflict Between Major PowersThe potential for a conflict involving major economic powers such as the United States, China, India or the European Union could rise to levels that could cause major disruptions to the global economy.Geopolitical Tensions Remain HighThere will be no reduction of the level of geopolitical tension around the world in the coming months, with conflict risk and the threat of internal unrest remaining high in many regions.Demographic Decline AcceleratesDramatically-falling birth rates could result in a much faster decline in youth and working-age populations in most of the world's leading economies, resulting in much more severe laborshortages in the future.

The ISA March 2023 Spain Country Report50Spain: Economic Risk Outlook•Spanish economic risk levels are, together with Italy, the highest of any larger developed economy in the world.•Moreover, economic risk levels in Spain are forecast to remain high over the next few years as key sectors of the economy have struggled to recover from the country's recent series of economic crises.Current Economic Risk Ratings: Economic Risk Outlook: 012345678910Budget RiskTrade RiskRegulatory RiskCredit RiskSector RiskInvestment RiskLabor RiskCurrency RiskInflation/Deflation RiskRecession RiskRisk MeasurementsLow Risk..................High RiskISA Risk Ratings-0.0 to 1.9 = Low Risk-2.0 to 3.9 = Low to Moderate Risk-4.0 to 5.9 = Moderate Risk-6.0 to 7.9 = Moderate to High Risk-8.0 to 10 = High Risk

The ISA March 2023 Spain Country Report51Spain Demographic and Environmental Outlook

The ISA March 2023 Spain Country Report52Spain: Population OverviewChart: Working-Age PopulationChart: Total Population Spain faces one of the world's most pressing population declines. Without a significant increase in immigration or a reversal in the country's declining birth rate, Spain's economic future is uncertain.05,000,00010,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,00019701980199020002010202020302040205020602070Total Population05,000,00010,000,00015,000,00020,000,00025,000,00030,000,00020002010202020302040205020602070Working-Age PopulationWorking-AgeNon-Working-AgeSource: UN

The ISA March 2023 Spain Country Report53Composition of Spain's PopulationEthnic relations remain one of Spain's biggest problems, given the diversity of the country.•All of Spain's leading minority groups would like autonomy or outright independence from Spain.•The Catalans are pushing hard for independence for Catalonia.•Violence in the Basque lands has ended, but separatist sentiments persist.Castilian Spanish is the official language of Spain.•This language is spoken by nearly all of the population as a first or a second language.Language is a major source of regional nationalism.•This is led by the Catalan and Basque languages, both of which enjoy strong positions in their home regions.The Catholic Church continues to exert strong influence in most areas of Spain.•The Catholic Church is often associated with the Franco dictatorship from 1939 to 1975.Most non-Christian immigration consists of Muslims from North Africa.

Languages

74.0%
17.0% 7.0% 2.0%

Castilian

Spanish

Catalan

Galician

Basque

Religions

99.0%
1.0% Roman

Catholic

Other

Ethnic Groups

72.0%
17.0% 6.0% 2.0% 3.0%

Castillan

Catalan

Galician

Basque

Other The ISA March 2023 Spain Country Report54West Europe Population Trends by Country 0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

195019701990201020302050

Total Population

GermanyUKFranceItaly

SpainBeneluxScandinaviaOthers

-20%-15%-10%-5%0%5%

Others

Spain Italy

Germany

UK

Scandinavia

France

Benelux

Regional Population Growth

(2000-2050)

West Europe is undergoing a major demographic shift as birth rates remain low across the region and people live longer. This will result in major population declines in Spain, Italy and Germany, with the rest of the region witnessing population stagnation. The end result will be the need for major economic and immigration reforms.Source: US Census BureauSource: US Census Bureau

The ISA March 2023 Spain Country Report55Spain: Leading Urban Centers•The rival cities of Madrid and Barcelona are easily the largest two urban centers in Spain. •While Barcelona has developed into Spain's richest city and the center of foreign investment, Madrid remains the administrative heart of the country. •Numerous other mid-sized cities are found throughout the country.Chart: Largest Urban Centers Summary: 02,000,0004,000,0006,000,0008,000,000PalmaMurciaZaragozaLas PalmasMalagaBilbaoSevillaValenciaBarcelonaMadridMetropolitan Area Population2020 PopulationSource: National census

The ISA March 2023 Spain Country Report56Key Demographic Issue in Spain Aging Population 0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

200020102020203020402050

Old vs. Young in Spain

Over 65Under 19

Spain is forecast to have one of the world's oldest populations by the year 2050.•The number of Spaniards over the age of 65 will expand by more than four million people by the middle of this century.Spain is looking at alternatives to alleviate the looming coming demographic crisis.•Increased immigration from Latin America is one proposal, but this has been dented by Spain's recent economic crisis.•Increasing the retirement age to 70 is another option, though it is highly unpopular with a large segment the country's electorate.Spain's economy is under threat from the demographic situation in that country. With the number of pensioners set to increase dramatically, Spain will find itself under increasing pressure to pay for this large segment of Spanish society. One of Europe's most aged populationsSource: US Census Bureau

The ISA March 2023 Spain Country Report57Spain: Topography and ClimateTopography •Most of Spain is covered in mountains or highlands, highlighted by the Pyrenees in the north and the Sierra Nevada in the south. •The only navigable river in the country is the Guadalquivir River in the southern area of Spain.Climate•With the exception of the north-western area of the country, Spain is generally warm and dry. •The Atlantic coast can be cool and wet, whereas the southern areas of Spain experience extremely hot temperatures in the summer months. Topography and Climate: Spain has been at the forefront of efforts by European fishing organizations to maintain their fishing rights in European and other waters.•Spanish fishers are currently the biggest benefactors of Europe's fishing regulations.•Meanwhile, fish stocks off of the Atlantic Coast of Spain have been severely depleted.The National Water Plan would have shipped water from the Ebro River in the north to the south of the country.•Earlier Spanish governments had supported this controversial project.•Water shortages are becoming a major threat to many areas of southern Spain.Key Environmental Issues:

The ISA March 2023 Spain Country Report58Spain: Demographic and Environmental Risk Outlook•Spain faces some of Europe's highest demographic risk levels.•This is the result of having one of the world's lowest birth rates and being at the center of one of the world's leading immigration routes.Current Risk Ratings: Low Risk..................High RiskDemographic Risk Outlook: ISA Risk Ratings-0.0 to 1.9 = Low Risk-2.0 to 3.9 = Low to Moderate Risk-4.0 to 5.9 = Moderate Risk-6.0 to 7.9 = Moderate to High Risk-8.0 to 10 = High Risk•Environmental risk levels are growing due to concerns over pollution and water availability.Environmental Risk Outlook:

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