27 Apr 2016
Spain: New elections only 3 days after UK referendum – ING
Geoffrey Minne, Economist at ING, notes that as expected, no agreement has been found to form a new Spanish government as Pedro Sánchez failed to find new partners to form a “coalition for change”, also named an “anti Rajoy coalition”.
Key Quotes
“After a third round of talks with party leaders, the King of Spain decided to call new elections based on the fact that no political leader has enough support in the national parliament to become the next Spanish PM. Even if the official deadline is 2 May, we see no reason to believe that an agreement will be found in the meantime. The new elections should be held on 26 June, the same week as the referendum in the UK. The beginning of the political summer is expected to be stormy in the Eurozone and we can expect the financial markets to be nervous at that time.
Will the outcome be different from the inconclusive elections of December? We should not expect a radical shift in one direction or another as opinion polls have not changed so much but the pressure should be higher for the political leaders. Both traditional parties are still expected to stay relatively far from the majority threshold. The only noticeable changes are increasing support for the liberal party Ciudadanos and the possible reinforcement of Podemos through an alliance with United Left (a smaller left wing party that reached 3.7% of the votes in December). However, it remains that no coalition appears as the obvious exit to the current gridlock. Even if it remains highly unlikely, a solution might be found if one of the key leaders (such as Mariano Rajoy, Pedro Sánchez or Pablo Iglesias) were to step aside.
Looking at the soft data, needless to say that more than 6 months without any concrete government proposal will leave a mark. The bank lending survey has already showed a decreasing demand for housing loans and consumer confidence has not increased since last December. The Spanish economy seems to hold its breath for the moment and confidence should remain subdued.
The IMF was probably right in its soft GDP growth forecast for 2016 as it is reasonable to think that both consumption and investment should be affected in the rest of the year. Knowing that the political positions of the different parties have not moved since January, the effect on domestic demand could be larger than initially expected. We therefore revise our GDP growth forecast from 2.9% to 2.8% for 2016.”
Key Quotes
“After a third round of talks with party leaders, the King of Spain decided to call new elections based on the fact that no political leader has enough support in the national parliament to become the next Spanish PM. Even if the official deadline is 2 May, we see no reason to believe that an agreement will be found in the meantime. The new elections should be held on 26 June, the same week as the referendum in the UK. The beginning of the political summer is expected to be stormy in the Eurozone and we can expect the financial markets to be nervous at that time.
Will the outcome be different from the inconclusive elections of December? We should not expect a radical shift in one direction or another as opinion polls have not changed so much but the pressure should be higher for the political leaders. Both traditional parties are still expected to stay relatively far from the majority threshold. The only noticeable changes are increasing support for the liberal party Ciudadanos and the possible reinforcement of Podemos through an alliance with United Left (a smaller left wing party that reached 3.7% of the votes in December). However, it remains that no coalition appears as the obvious exit to the current gridlock. Even if it remains highly unlikely, a solution might be found if one of the key leaders (such as Mariano Rajoy, Pedro Sánchez or Pablo Iglesias) were to step aside.
Looking at the soft data, needless to say that more than 6 months without any concrete government proposal will leave a mark. The bank lending survey has already showed a decreasing demand for housing loans and consumer confidence has not increased since last December. The Spanish economy seems to hold its breath for the moment and confidence should remain subdued.
The IMF was probably right in its soft GDP growth forecast for 2016 as it is reasonable to think that both consumption and investment should be affected in the rest of the year. Knowing that the political positions of the different parties have not moved since January, the effect on domestic demand could be larger than initially expected. We therefore revise our GDP growth forecast from 2.9% to 2.8% for 2016.”