Spain: PM Sanchez is likely to throw the towel in the ring and call snap election - ING

"After months of trying to convince Catalan lawmakers to support the 2019 budget, Prime Minister Sanchez is likely to throw the towel in the ring and call snap elections," ING economist Steven Trypsteen wrote in a recently published article. "We see a right-wing government or political gridlock as the most likely outcomes."

Key quotes

"Recent polls still show that the PSOE is the leading party with about 24% of the votes. The two large right-wing parties, the PP and Ciudadanos, follow with about 20% and 18%, respectively, of the votes. Podemos is fourth with about 14%. A new factor in the political equation is VOX. In recent polls, the party achieves about 10% of the votes. The political fragmentation in Spain is therefore here to stay and forming a coalition will be necessary."

"All in all, political uncertainty is bound to remain high in Spain, hurting investment and hiring decisions. The economy is still growing at a fast pace, although annual growth slowed from 3.1% in 2017 to about 2.5% in 2018. Given the weaker external environment, we also see the Spanish economy slowing further in 2019 to about 2% annual growth. Political gridlock could further hamper the economy, though the better state of the economy should make political tensions less dangerous than a few years ago. We don’t exclude some widening in Spanish bond spreads, but this is unlikely to go very far."

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