Spain: Enter another minority government
Pedro Sanchez, the leader of the socialist party PSOE, is the new prime minister of Spain after his no-confidence vote against Mariano Rajoy passed in parliament. We expect the economic impact to be low in the short-run
Weak government raises odds of snap election
Sanchez said he wants to keep the 2018 budget and to continue to follow the stability programme presented by the previous government under the European semester, at least for this year. He will try to pass the 2019 budget and he does not want new elections.
The just-ousted government, led by Rajoy, was also a minority government with 134 seats in a parliament of 350 and governing was already difficult. As the PSOE only has 84 seats and there is no talk of a formal coalition, it will be even more difficult to govern. Officially, new elections are planned in 2020. But given the weakness of the new government, a snap election in the coming months is more likely.
These developments, of course, introduce some uncertainty into the economy. But we expect the overall impact to be low. As Sanchez will carry on with the fiscal policy decided by the previous government, financial markets should not worry about a spending surge by the new government for now, as in Italy. Admittedly, Sanchez could try to go for larger fiscal stimulus in the 2019 budget, but it remains to be seen if he will succeed in getting that budget through parliament.
Economic activity is strong
There are two further reasons why Spain is not really a threat to economic stability:
- First, support for Europe is firm in Spain. The Eurobarometer of November 2017 showed that 21% of Spaniards think their country would fare better outside the EU, while the EU28 average was 31%. In Italy this was 46%.
- Second, current economic activity continues to be great. Yesterday, GDP growth in 1Q was confirmed at 0.7% quarter-on-quarter, while the year-on-year growth rate was revised upwards by 0.1 percentage points to 3.0%. Exports also grew faster compared to 4Q 2017 and so Spanish activity does not seem to be affected by the Eurozone slowdown in 1Q. Here too, this is in contrast to the Italian economic performance of 0.3% quarter-on-quarter growth in 1Q.
The Spanish-German bond spread rose only a few basis points after the announcement and is still close to 50bp lower compared to Monday on the back of more favourable recent political developments in Italy.
Download
Download article
1 June 2018
In case you missed it: Brave new world This bundle contains 7 articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).