RaboResearch - Economic Research

Catalan separatists tone down defiant stance

Economic Report

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  • Yesterday’s vote to reinstall Puigdemont as Catalan president was postponed
  • Puigdemont could not be reappointed as he is still in self-imposed exile in Belgium
  • Off the record, Puigdemont has stated that he thinks he will be sacrificed. On the record, Puigdemont is not giving up
  • We believe the probability of a return of Puigdemont as president is small, but it will likely take time before all separatist parties agree on another candidate
  • The central government will rule the region from Madrid at least until a new president has been appointed, which could take until 2 April at latest
  • Tensions are set to remain high in the coming years, but Catalonia will stay part of Spain
  • There is no evidence that the political crisis has had a large impact on Spain’s overall economy
  • In 2017, the economy grew by 3.1%. For 2018, we expect 2.3% growth, with upward potential

Adiós Puigdemont

Yesterday’s vote in the regional parliament to reappoint Puigdemont as Catalan president, was postponed. Last week, Spain’s Constitutional Court ruled that he has to be physically present in the regional parliament to be elected president. As Puigdemont is still in self-imposed exile in Belgium, the vote was not possible and for sure would not have led to the recovery of self-government in the region. We expect Madrid will only start lifting article 155 once a legitimate president and a new government are put in place.

Without a new legitimate Catalan president, there seems to be no evident way out of Catalonia for Spain’s Prime Minister Rajoy, nor a clear ‘exit horizon’ as opposition leader Sanchez has demanded. However, since this yesterday morning there’s a bigger chance that Rajoy’s problems will at least slightly fade, without the need to perform a Houdini act.

A Spanish television station has caught on camera some private phone messages of Puigdemont saying that it’s over, that he is being sacrificed by former allies and that he will start to dedicate his life to self-defence and to recover the damage done to his reputation. This could imply that Puigdemont intends to step aside to let another legitimate candidate be chosen as Catalan president. This would not only play in the hands of Rajoy, but also in those of the separatist ERC, the second largest separatist party in the Catalan Parliament. Earlier senior officials of the party had said that Catalonia needs a president that can govern, not one in exile, while another had suggested that Puigdemont could step aside to solve the current deadlock.

It ain’t over till it’s over!

But as always, it ain’t over till it’s over. In public, Puigdemont has so far only stated that he is the best candidate. And, as a reaction to the published private messages, he has announced on Twitter that he would not “back away or return, out of respect, gratitude and commitment to the citizens and the country”. So far, public officials have denied Puigdemont has been sacrificed. Instead they have stressed that they are working to organise an effective investiture vote. Still, we believe the probability of Puigdemont being reappointed, which would lead to a new clash between Madrid and Barcelona, has dropped significantly.

This, does not necessarily mean that the region will soon regain self-governance. Effective resignation by Puigdemont and finding a new president candidate that all separatist parties agree on takes time. However, an agreement will likely be reached by 2 April at the latest, as otherwise new elections would be triggered.

Secession unlikely, but tensions remain

So for now we expect the current standoff to continue with the central government ruling the region from Madrid. As long as Madrid does not allow the Catalan government to govern, there is no risk of a new declaration of unilateral independence as there is no government in place to ‘officially’ claim it. But, also if the regional government gets back its powers, unilateral independence is unlikely given the chain of events since and practical obstacles faced following the unilateral declaration of independence last October. As Madrid is unlikely to grant Catalonia independence, we believe secession is unlikely in the coming years. Yet, with tensions set to remain high for years and spike occasionally, secession remains a tail risk. In the end, we foresee that Barcelona and Madrid will settle for more (fiscal) autonomy for the region. It could take years, though, before a stable solution is reached.

The economy couldn’t care less

There is little evidence that the political crisis has had a mentionable impact on Spain’s overall economy. The economy grew with 0.7% q-o-q in 17Q4, 0.1%-point above our forecast and only 0.1%-point less than in the third quarter. Obviously, it could be the case that the crisis has in fact done its part to undermine Spain’s growth, primarily via significant weakness in Catalonia, but that the underlying momentum is still stronger than we had foreseen. In any case, the economy grew by 3.1% in 2017, compared to 3.3% in 2016; with unemployment coming down from 18.6% end 2016 to 16.6% end 2017. Looking forward, the higher than expected fourth quarter figure mechanically lifts our forecast for 2018 from 2.2% to 2.3%. The moderation compared to 2017 mainly stems from, amongst other things, lower pent-up demand and employment growth and historically low household saving rates. We will review our forecast during our next forecasting round in March. Should monthly hard data follow the improving economic sentiment at the start of this year we may have to further raise our growth forecast.

Figure 1: Sentiment aiming for the stars
Figure 1: Sentiment aiming for the starsSource: Macrobond, Rabobank
Figure 2: Some growth moderation expected; forecast to be reviewed in March
Figure 2: Some growth moderation expected; forecast to be reviewed in MarchSource: Macrobond, Rabobank, Nigem
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