EcoFlash

Catalonia regional election: independence no longer the key issue?

ECO FLASH  
N°21-03  
11 February 2021  
CATALONIA REGIONAL ELECTION: INDEPENDENCE NO LONGER THE KEY ISSUE?  
Guillaume Derrien  
Elections polls point towards a breakthrough  
by the Socialist Party and the far right to the  
UNEMPLOYMENT RATE, CATALONIA & NATIONWIDE  
detriment of the centre-right Ciudadanos  
party.  
%
Catalonia  
Nationwide  
2
2
7
5
Although political risks continue to persist  
in Catalonia today, the economic downturn  
caused by the Covid-19 crisis could weaken  
the momentum for the pro-independence  
movement and increase support for the  
Central Government  
23  
2
1
1
1
1
1
1
9
7
5
3
1
9
7
5
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20  
The Covid-19 crisis has accentuated  
Catalonia’s dependence on the Central  
Administration and Europe more broadly.  
CHART 1  
SOURCE: INE  
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.  
Although 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  
2
019 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 bank  
for a changing  
world  
Eco Flash 21-03 // 11 February 2021  
economic-research.bnpparibas.com  
2
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.  
SHARE OF INDUSTRY (EX-CONSTRUCTION) IN EMPLOYMENT IN CATALONIA  
%
37  
35  
33  
31  
29  
27  
The Covid-19 crisis will also accentuate the region’s fiscal dependencee  
2
5
3
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  
2
(  
21  
19  
17  
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20  
(
Fondo de Liquidez Autonómica) in 2012 – in response to the economic  
CHART 2  
crisis – that facilitated Central Government loans to the autonomous  
SOURCE: INE  
1
regions . 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.  
Guillaume Derrien  
1
«El Estado sufragará el 82% de la financiación del próximo Govern», El Economista, 9 February 2021.  
The bank  
for a changing  
world  
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