Spain: Economic growth remains dynamic – despite political impasse

The political hanging game in Spain continues. After the previous Prime Minister Pedro Sánchez did not obtain a majority for his re-election in a second round of voting, the options now remain for a third round of voting until 23 September or new elections on 10 November.

The private sector takes a critical view of the country’s political future. Various climate barometers continue to show solid overall confidence. For several months now, however, the mood in industry, services and consumers has been deteriorating visibly. The fundamentally adverse environment resulting from international geopolitical risks is not the only reason for this.

However, concerns about the possible negative economic consequences of a political stalemate are likely to be overstated. This is already reflected in the result for economic growth in the second quarter. According to a preliminary estimate by the Spanish central bank, economic growth was a strong 0.6% compared with the previous quarter. This is only slightly weaker than the average for the last two years and significantly more than what the euro zone as a whole has to offer in the second quarter.

In addition, the acting provisional minority government in Spain has extensive political leeway through so-called decrees (comparable to emergency ordinances), within which it does not require the approval of parliament. In this respect, a political „Lame Duck“ is not necessarily to be expected in the coming months.

For the time being, therefore, we do not see any noticeable effects on further economic development, even in the event of new elections. Growth has been decoupled from political reality for some time and is supported by a mix of a strong recovery on the labour market, a boom in tourism and strong investment. For 2019 as a whole, we expect economic growth to be strong at 2.1%. This is more than twice as much as we expect for the euro zone as a whole.

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