Country risk expert insight: Spain after the political impasse
Claudia De Meulemeester
The political chaos, which left the country without a government for 10 months after two election rounds, seems to be finally contained as a new minority government is in the making.
Spain is ranked 42nd in Euromoney’s latest quarter results and scores show an increase in economic performance, despite low employment figures and political instability. ECR asked two of its experts what we can expect in the coming months.
Roberto Cervelló Royo, associate professor, faculty of business administration and management, Universitat Politècnica de València
“Like in other EU countries, growth so far has proven resilient to political shocks. Economic growth in Spain remained unscathed during the third quarter of the year. Apart from the larger-than-expected stimulus programme from the European Central Bank, this economic recovery is particularly noteworthy due to exports and a new tourism boom.
“However, Spain is still beset by political uncertainty since the new government will have to deal with political and fiscal challenges (for example, to submit a 2017 budget to the EU authorities). But considering the favourable interest-rate environment, the low fuel prices and the investment opportunities, Spain still shows positive forward dynamics.”
Markus Böcklinger, sovereign and country risk analyst, Erste Group Vienna
“On the back of these solid growth figures, the labour market has continuously improved over the past three years. The increase in employment was, however, mostly due to temporary work contracts, and the unemployment rate will most likely stay elevated for a prolonged period of time.
“In 2015, Spain exceeded its deficit targets agreed with the EU commission mostly due to fiscal slippage by the autonomous regions. A re-emergence of the sovereign debt crisis is unlikely, despite the excessive fiscal deficit and public debt around 100% of GDP, as long as monetary policy stays accommodative.
“It is unlikely that the new formed government will serve a full term as the opposition has an incentive to withdraw support and trigger snap elections once there is a reasonable chance to win those. Catalonia’s independence movement remains a further significant political risk and a unilateral declaration of independence can be considered as a tail risk.”
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