Potential economic/political implications of the Catalonian crisis – HSBC

Fabio Balboni, European Economist at HSBC, assessed the probable impacts of the current crisis in Catalonia on politics and the economy.

Key Quotes

“All in all, we see a risk that it might take a long time for the Catalan crisis to be resolved. In the meantime, we might start to see negative consequences in terms of the economic and fiscal outlook for Spain, given the size of Catalonia (c20% of Spain's GDP) and the likely drag on consumer and investor confidence, and possibly also tourism, one of the key drivers of the Spanish recovery”.

“The Spanish independent fiscal authority, Airef, warned on 18 October that the government's estimate in terms of possible GDP impact "seemed to contemplate a scenario where the constitutional crisis will be of relatively short duration" and that growth could be up to 1.2ppt lower if the crisis was to extend until next year. According to Airef, this could also mean a higher fiscal deficit of between 0.2% and 0.5 % of GDP, making it harder to meet next year's EU target (2.2% of GDP)”.

“So far PM Rajoy has managed to keep a united front with the main opposition party PSOE in Madrid against the Catalan independence, so political instability and possible early elections do not seem an imminent risk”.