Sunday’s election could shake up Catalonia’s political landscape rather significantly. Should the polls prove right, Ciudadanos, the centre-right party that won the majority of votes in 2017, is expected to lose significant ground in favour of the extreme-right party Vox, which could enter Catalonia’s Parliament for the first time ever. The Socialist Party, led by former Health Minister Salvador Illa, is also predicted to make a breakthrough, perhaps securing more votes than the two pro-independence parties, the Republican Left of Catalonia (ERC) and Together for Catalonia (JxCat). Note, however, that the election results are still highly uncertain, and will surely give rise to some alliance building to create a new parliamentary majority.
UNEMPLOYMENT RATE, CATALONIA & NATIONWIDE
SHARE OF INDUSTRY (EX-CONSTRUCTION) IN EMPLOYMENT IN CATALONIAAlthough political risks persist in Catalonia today, the economic downturn caused by the Covid-19 crisis could weaken the pro-independence movement and increase support for the Central Government. The unemployment rate in Catalonia has indeed jumped from 10.4% in Q4 2019 to 13.9% in Q4 2020 (Spanish statistics office INE, see chart 1). The growing weight of the services sector is the main reason why the economy, and the job market in particular, were hit so hard by the crisis.
The shrinking of the region’s industrial sector has certainly slowed in recent years, although it hit a new low in Q4 2020, with the sector accounting for only 17.4 % of employment (INE data, see chart 2). Prior to the pandemic, however, the region’s job market situation was comparatively healthier than in the rest of Spain, thanks notably to its vibrant tourism sector. Furthermore, the region’s unemployment rate remains, at the end of 2020, nearly 2.5 points below the national average, and close to its 2017 level. Even so, unemployment is still highly contained by government support measures, notably the ERTE temporary unemployment scheme.
The Covid-19 crisis will also accentuate the region’s fiscal dependence on the Central Government. Although the region has maintained a relatively small and stable public deficit since 2017 (-0.6% of Catalonia’s GDP in 2019), the weight of the Central State as a creditor of the region has increased very sharply in recent years. While the Central Government covered only about a third of the region’s financing needs in 2016, this figure rose to more than 70% in 2019. One of the factors behind this shift was the introduction of a new credit line (Fondo de Liquidez Autonómica) in 2012 – in response to the economic crisis – that facilitated Central Government loans to the autonomous regions1. During the next administration, this ratio is expected to rise even further due to the economic impact of the pandemic.
European economic support via the EU Next Generation recovery fund may also enable Madrid to reinforce its position vis-a-vis Catalonia’s Parliament. Over the next six years, Spain will receive nearly 73 billion euros (5.6% of GDP) in direct subsidies via the new European mechanism and 140 bn euros (10.7% of GDP) if we include the loans. Of course, a large amount of these funds will go to Catalonia, given the region accounted for 19% of total Spanish GDP in 2019. Catalonia’s leaders have been trying to obtain direct management of these funds, but this control will likely remain in the hands of Prime Minister Pedro Sanchez and the Central Administration.
Catalonia’s political landscape is still highly fragmented today. Yet regardless of the results of Sunday’s elections, the prospects of a popular surge like the one in 2017 seem less likely. The health and economic crises have relegated pro-independence issues in the political debate more in the background.
