Country Forecast Spain October 2017 Updater

Country Forecast Spain October 2017 Updater

  • October 2017 •
  • Report ID: 325662 •
  • Format: PDF


  • In November 2016, following two inconclusive general elections, the conservative People's Party (PP) formed a minority government led by the incumbent prime minister, Mariano Rajoy.
  • Spain has been plunged into a severe constitutional crisis by a referendum on independence in Catalonia, held on October 1st, which Mr Rajoy has badly mis-handled. The vote is likely to lead to a unilateral declaration of independence by the regional parliament.
  • The Economist Intelligence Unit expects a strong response from the national government, probably including the suspension of Catalan autonomy and the dissolution of the regional parliament in order to hold a snap election.
  • We forecast that Catalonia will remain part of Spain, but that relations between Catalonia and the state will be severely damaged, as will those between nationalists and unionists within the region.
  • We do not expect a national election over the near term. As the immediate threat to territorial integrity subsides, a snap vote will be a considerable risk. Mr Rajoy is unlikely to complete his four-year term to 2020.
  • Following a deficit of 4.5% of GDP in 2016, we now expect a shortfall of 3.3% of GDP in 2017 and an average deficit of 1.6% of GDP in 2018-22. Public debt is expected to fall to just over 86% of GDP by 2022.
  • Economic reforms in 2011-15-including substantial modifications to labour regulations, pensions and the tax code, among other policy areas-have improved the business environment. However, the pace of reform will remain substantially slower, not least because of the constitutional crisis.
  • Following an estimated expansion of 3.2% last year, we estimate real GDP growth of 3.2% in 2017 and average growth of 2.1% in 2018-22, assuming that disruption from tensions with Catalonia is minimal.
  • After a current-account surplus of 1.9% of GDP in 2016 and an estimated 1.6% this year, we expect the surplus to average 0.7% in 2018-22, buoyed by respectable export performance even as the country's import bill rises.






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