Spain’s political instability threatens investment, says Moody’s Analytics

The absence of a government after two elections within eight months – and the possibility of a third poll – along with mounting pressure from separatists in Catalonia and the UK’s exit from the EU are threatening to further reduce consumer spending and foreign investment, and holding back the recovery of the Spanish economy, says Moody’s Analytics.

The economic research group says in a new report says that internal and external political factors will slow down investment in the short term, hitting confidence and “partially eclipsing the benefits of domestic structural reforms,” and adding: “The UK’s decision has strengthened separatist feeling in an already politically complicated Spain,” says Efua Afful, the report’s author, referring to the Catalan regional parliament’s decision to approve a plan setting out steps toward independence.

Moody’s says that implementing structural reforms will support the ongoing growth of the Spanish economy

Moody’s highlights that Spain is still being run by an interim government despite having held two general elections, and that the main political parties are showing little sign of being able to reach agreement on setting up a new government.

Moody’s Analytics points out that interim Prime Minister Mariano Rajoy of the Popular Party (PP) has failed to win the support of the Socialist Party (PSOE), and that it is “unlikely” that the left-leaning Podemos will support a PP administration, adding that the Socialists and Podemos differ over Catalonia’s independence demands, preventing them from forming a broad left coalition.

“Thus, Spain could remain without a functioning government for longer than expected,” warns Moody’s Analytics, adding: “As confidence deteriorates, investment growth will slow down to 3.9% in 2016 and to 2.5% in 2017.” That said, Moody’s says that implementing structural reforms will support the ongoing growth of the Spanish economy. 

English version by Nick Lyne.