Back to the ballot box

EcoPerspectives // 4 quarter 2019  
Back to the ballot box  
Spanish voters will be called back to the ballot box on 10 November, but there is no certainty that the election results will pull the  
country out of its current impasse. The political landscape is still too fragmented to produce a lasting coalition. The line to follow in  
the face of Catalan independentism only exacerbates the divisions and helps justify the lack of co-operation. Meanwhile, growth has  
slowed somewhat more sharply than originally expected, although it is still holding around 2%, a performance that would be  
welcomed by many of the other big European economies. The elaboration and adoption of the 2020 budget bill will have to wait until a  
new government is formed.  
A political impasse  
1- Growth and inflation  
Chalk up another collective failure for Spanish politics: although  
Pedro Sanchez clearly won the early legislative elections held on 28  
April, he failed to form a government capable of winning the support  
of a parliamentary majority. The Socialist leader tried to form a  
minority government based solely on his party’s support, but his  
plans ran up against Podémos’ determination to integrate the new  
government as part of a veritable coalition. In late September he  
abandoned hopes of receiving a new mandate, and the King of  
Spain called new elections.  
GDP Growth (%)  
Inflation (%)  
For the fourth time in four years, Spanish citizens will be called back  
to the ballot box on 10 November to elect their representatives.  
Although the tides could change in the weeks ahead, the first polls  
suggest that voters have no intentions of deviating much from the  
choices they made less than six months ago. If these trends are  
confirmed, the results will leave the balance of power in the  
parliamentary hemicycle virtually unchanged from the current  
Source: National accounts, BNP Paribas  
household consumption was up a little more than 0.8% y/y. In this  
environment, we revised our 2020 growth estimate down to about  
.5%. The slowdown is beginning to have an impact on the labour  
market, and employment rose only 0.3% q/q in Q2, the smallest  
increase since 2014. The unemployment rate has just fallen below  
4% for the first time in ten years (13.9% in July) and continues to  
situation . This might force party leaders to adjust their positions to  
exit the current impasse.  
Heading towards a slowdown  
Spain’s image as a part of the European economic panorama has  
not changed: compared to the other major eurozone economies, the  
Spanish economy seems to be doing rather well. It boasts stronger  
growth with a relatively broader and more solid base.  
trend downwards for the moment, albeit at a lesser pace.  
Public finances in autopilot  
Under these circumstances, public finances will remain in autopilot.  
Like in 2019, the current political situation will make it difficult to  
prepare and adopt the 2020 fiscal plan, at least through the end of  
the year. Two key factors are likely to influence the process of  
reaching a fiscal equilibrium: 1) a slightly sharper-than-expected  
economic slowdown, which squeezes fiscal revenues in particular,  
and 2) the drop in sovereign bond yields in the eurozone, which  
obliges governments to regularly lower the average cost of debt on  
bond issues (0.37% in Spain for debt issued in H1 2019) and the  
annual debt servicing charge on public finances (2.4 points of GDP  
expected last April). Whether the next government is able to reach  
the 2019 deficit target of 2% of GDP, it will need parliamentary  
support to maintain the goal of reaching a public finance equilibrium  
by 2022.  
Although economic activity has been resilient so far, there have  
been clear signs in recent weeks that the economic slowdown –  
which has already been perceptible at the European level for  
several quarters  is beginning to take hold and gain momentum on  
the Iberian Peninsula. In particular, the purchasing managers’ index  
PMI) for the manufacturing sector has clearly moved into  
contraction territory since last summer. Growth statistics for 2018  
and early 2019 have also been revised rather sharply. Growth  
certainly seems to be better balanced: private consumption is not  
nearly as robust as initially announced and foreign trade, though still  
sluggish, did not slow as sharply as feared. All in all, the 2018 GDP  
growth figure was revised downwards to 2.4% (-0.2pp). At mid-2019,  
GDP growth was barely holding above 2% (2.1% y/y), while  
According to Politico’s Poll of Polls dated 29 September 2019, the People’s  
Party would build on its lead (21% of estimated votes, vs 17% in April), to the  
detriment of Ciudadanos (12% vs. 16%). The results are expected to remain  
virtually the same for PSOE (29%), Podemos (13% vs 14%), Vox (9% vs 10%),  
and the two Catalan nationalist parties ERC (4% vs 3%) and Junts (2%).  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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