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Spain and Catalonia: a brake on economic growth

The secessionist crisis raises Spanish borrowing costs and slows consumption and tourism in Catalonia

Spanish Economy Minister Luis de Guindos.
Spanish Economy Minister Luis de Guindos.

The alarm bells over the economic cost of the secessionist crisis in Catalonia are starting to ring intensely and incessantly. While the government has admitted in its budget plan (with few arguments to back up the claim) that the cost to growth would be three tenths of a point of GDP – the growth forecast for 2018 therefore dropped from 2.6% to 2.3% – the Independent Authority for Fiscal Responsibility (Airef) estimates that the cost of the crisis lies somewhere within a bracket ranging from four tenths of a point to 1.2 points of GDP, depending on how long the political crisis lasts; the cost to Spaniards could ultimately be as much as €13.4 billion. Airef is right: a short-term crisis that can be resolved in one or two months is not the same as a conflict that might drag on throughout 2018.

The situation is one of economic alert

For now, the economic impact of the breakaway process is manifesting itself in the form of setbacks to the national economy. The Treasury faced a higher yield on the sale of three-year bonds as well as higher borrowing costs for its 10-year and 30-year bonds. In Catalonia, economic indicators are dropping fast. The real estate market is practically at a standstill, consumption is dipping at an alarming rate (the economy minister announced that sales at Catalan superstores have fallen by 20% since October 1) and travel bookings across the region are dwindling at a rate of 15% due to the painful state of uncertainty. The deterioration of the Catalan economy will have a follow-on effect on the Spanish economy, but the drop in consumption and investment will affect Catalonia first and foremost.

The deterioration of the Catalan economy will have a follow-on effect on the Spanish economy

The situation is one of economic alert. The government should explain what its expected deadlines are for the stabilization and resolution of the crisis, and it should have an economic action plan for different scenarios depending on the time frames. Because it is far from clear that this crisis will be resolved before 2018 comes around.

English version by Susana Urra.

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