[ad_1]
- Spain faces growing political unrest.
- This comes against a backdrop of a slowing economy.
- A slowdown, however, does not necessarily mean the economy is in bad shape.
The coming weeks will be stressful for Pedro Sánchez, the Socialist leader of the minority government, as his government will be faced with a number of thorny questions.
In a few days, there will be a second parliamentary vote for the 2019 budget. At the end of June, the parliament rejected the 2019 draft budget, which was the first blow for the minority government. Only 88 deputies (out of 350) voted in favor of the plan. Spain’s far-left Podemos party, which has 67 seats, did not support the draft budget because it wanted more flexible deficit targets. Sánchez, on the other hand, reiterated the importance of fiscal discipline and continuing to pursue the deficit target of 2.2% of GDP. Finding a compromise will be difficult, and as the draft budget must be submitted to Brussels by October 15, the pressure will mount.
The second important political point is the situation in Catalonia. On September 11, the Catalans celebrate the National Day. Quim Torra, President of Catalonia, has already called for street protests to demand the region’s independence. A few weeks later, October 1, is the first anniversary of the referendum. Sánchez will have to be cautious, as he needs the support of nationalist parties in parliament.
Meanwhile, evidence of the economy’s deceleration is mounting. The first hard data for the third quarter does not show much movement from the second quarter. Retail sales in July fell 0.4% year on year, compared to -0.1% in June. The rise in inflation, from around 1.0% to over 2.0% in recent months, explains the weak performance.
ING
The slowdown in retail sales is one of the reasons we don’t expect the economy to pick up in the next few months. Another is the continued decline in PMIs in July for the manufacturing and service sectors.
A slowdown, however, does not mean the economy is doing badly. The growth rates in the past were simply extremely high. We still expect the Spanish economy to grow 2.6% in 2018, compared to 3.1% in 2017.
[ad_2]
