by Macroview There is a risk that government will not be able to serve full term, but markets are now becoming more focused on the Italian referendum in December. After 10 months of political impasse, Spain is set to have a new government at the end of this week. The decision by the Socialist party (PSOE) to abstain in the second parliament investiture vote clears the way for a minority government to be formed under prime minister Mariano Rajoy and thus avoids the need for a third general election in a year.The centre-right Partido Popular will most likely be alone in the minority government as Ciudadanos and other parties have been indicating that they do not wish to be part of it. This could mean the government that emerges this week struggles with further economic reforms, and even with the passage of the 2017 budget. After rescinding fines this year due for non-respect of the European Growth and Stability Programme, the European Commission has demanded that Spain undertake effective action and fiscal consolidation measures equivalent to 0.5% of GDP for 2017 and 2018. Furthermore, the unresolved issue of Catalonian independence will be again in the spotlight next year and will be difficult to address. For these reasons, the equilibrium remains fragile and the government might not last a full four-year term.
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Nadia Gharbi considers the following as important: Macroview, peripheral bonds, Spain, Spanish politics
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There is a risk that government will not be able to serve full term, but markets are now becoming more focused on the Italian referendum in December.
After 10 months of political impasse, Spain is set to have a new government at the end of this week. The decision by the Socialist party (PSOE) to abstain in the second parliament investiture vote clears the way for a minority government to be formed under prime minister Mariano Rajoy and thus avoids the need for a third general election in a year.
The centre-right Partido Popular will most likely be alone in the minority government as Ciudadanos and other parties have been indicating that they do not wish to be part of it. This could mean the government that emerges this week struggles with further economic reforms, and even with the passage of the 2017 budget. After rescinding fines this year due for non-respect of the European Growth and Stability Programme, the European Commission has demanded that Spain undertake effective action and fiscal consolidation measures equivalent to 0.5% of GDP for 2017 and 2018. Furthermore, the unresolved issue of Catalonian independence will be again in the spotlight next year and will be difficult to address. For these reasons, the equilibrium remains fragile and the government might not last a full four-year term.
In the short term, however, the Spanish economy is likely to continue to post impressive GDP growth numbers. We expect the Spanish economy to continue to outperform the euro area this year and next year, with 3.0% real GDP growth in 2016 and 2.3% in 2017.
Markets have welcomed the news that the political impasse is close being overcome and are now focusing increasingly on the referendum on Senate reform in Italy on 4 December. As a result, Spanish bonds are likely to continue their outperformance versus Italian bonds as suggested by our fixed income strategist.