To address this, it is essential to explore the various reasons for our business sector being so skewed towards small, low-productivity firms and to mitigate its effects. Many of the initiatives that could foster business growth would also facilitate the reallocation of activity across sectors and firms that will in all likelihood have to be faced in the coming years. A recent study found that the Spanish sectors best placed to address the challenges that the digital, green and demographic transition will entail are small in size, whether compared with other sectors or with Spain’s neighbouring economies. As part of a strategy to stimulate business growth, smaller firms should be helped to access a wider range of external sources of funding on more advantageous conditions, while the policies in support of business innovation should be strengthened. Action would also be desirable in the regulation of economic activity, an area that has become increasingly complex in recent decades, with a potentially adverse impact on business dynamics and aggregate productivity. Some recent initiatives in this area appear to be a step in the right direction, such as the Draft Law on business start-ups and growth (which seeks to boost business start-ups and foster their expansion by improving regulations), removing barriers to economic activity, combating business defaults and providing financial support for business growth. Another is the reform of the Insolvency Law, which brings in significant changes to insolvency and pre-insolvency procedures and may help partially remedy the shortcomings of the current insolvency mechanisms.

8  For its part, year-on-year growth in the prices of services and non-energy processed goods, which include processed food, stood at 4.3% in May. 3  of employment.9 Among the factors behind this worse relative performance of the Spanish economy is its specialisation in tourism.10 This sector has been among the hardest hit by the pandemic and, moreover, the recovery in inbound tourism has been slower in Spain. Indeed, the gap with the euro area has tended to narrow in the most recent period, given the improvement in activity in hospitality and leisure. However, there was still a significant gap in trade, transportation and hospitality; construction; and professional and administrative activities; as well as in industry, in part due to the importance of the automotive industry. Conversely, in the sectors that have led the recovery, such as financial activities and public administration, GVA has outstripped its pre-pandemic level in Spain more than in the euro area. From the standpoint of demand components, the difference visà-vis the rest of the euro area reflects the lower buoyancy of services exports,11 residential investment12 and private consumption.13 The role of economic policy in the pandemic crisis Economic policies worldwide have played a key role to mitigate the impact of the health crisis on the income and financial position of households, firms and financial institutions. The monetary, fiscal and prudential authorities have also taken complementary measures, adapting them flexibly to the health situation and the economic effects of the pandemic.