Spain: Election looms as Spanish economic recovery continues
November 20, 2015
After years of austerity measures and with the economy finally entrenched on a stable growth path, Spain will head to the polls for general elections on 20 December. While the elections are unlikely to derail the state of the Spanish recovery, early polls point to a fragmented Parliament, which is unchartered waters for the country and could increase the risk of policy inaction going forward. Spain grew robustly in the first three quarters of the year and has emerged as one of the fastest-growing major economies in the Eurozone. That said, a more split Congress could increase political instability and may lead to policy inaction, which could pose downside risks to economic prospects going forward. In addition, some of the parties have pledged to modify some of the government’s past reforms, which could affect business confidence in the long-run.
Spain’s political landscape has been traditionally dominated by two political parties, the ruling People’s Party (Partido Popular, PP) and the opposing Spanish Socialist Workers’ Party (Partido Socialista Obrero Español, PSOE), however, newcomers Citizens (Ciudadanos) and Podemos (translated in English as “We Can”) have emerged since the last general elections. These relatively-young parties solidified their place in local elections across Spain this year by attracting voters frustrated by the government’s austerity measures and corruption scandals, however, they have yet to be tested on a national stage.
The latest polls place the PP on course to win the most votes, although the polls do show that their support has waned significantly. While the PP dominated the 2011 general elections, winning 44.6% percent of the vote, recent surveys put them on track to earn only between 26–29% of the votes this election. Prime Minister Mariano Rajoy and his party have campaigned on a platform touting their economic successes over the past four years and by taking a hardline against Catalan separatists from the country’s wealthy north-eastern region, who have recently stepped up efforts to secede from the country. In an increasingly-tighter race for second, PSOE has remained the frontrunner, however Citizens has been picking up steam. Citizens was trailing Podemos in fourth place in September but has been riding an upward momentum in recent weeks and performed surprisingly well in the 27 September regional Catalan elections. If the election pans out in line with poll results, Citizens could be in a position to play kingmaker in a coalition government. Elaborating on the situation, Edoardo Campanella, Economist at UniCredit, adds:
“Since no party is likely to command an absolute parliamentary majority, a coalition government between the PP and C’s [Ciudadanos] is the most likely scenario and would likely be a reform-minded executive. The PP is increasing its support by upholding Spain’s territorial integrity, while C’s, being originally from Catalonia, might mediate between Madrid and Barcelona. Given its commitment to the renewal of the ruling elite, C’s will likely enter an executive with the PP only if Mariano Rajoy steps down as Prime Minister. “
At this time much remains unknown. Coalition governments are new territory for Spain and the economic policies between the four main parties differs considerably. However, despite political risks, the economy is expected to remain one of the Eurozone’s top performers next year due to robust domestic demand. The FocusEconomics Consensus Forecast panel expects GDP to expand 3.1% in 2015, which is unchanged from last month’s forecast. In 2016, panelists expect the economy to increase 2.7%, which is also unchanged from last month’s projection.