Spain is unlikely to have a new government before year-end, analyst says

Pedro Sanchez (2nd from right), Prime Minister of Spain and candidate of the Socialist Party (PSOE), cheers with his wife Begonia Gomez (2nd from left) to his supporters on election night.

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Spain is gearing up for its fourth election in four years after almost six months of failed political negotiations.

The Southern European economy has been at a political impasse since a general election in April. At the time, Prime Minister Pedro Sanchez won the vote, but without a majority and he has, since then, struggled to find support from other political groups to form a government. The Spanish King has started fresh consultations with the various parties, but without a breakthrough by Monday, Spain will automatically hold elections on November 10.

"Given the existing discord between parties, a new election is the most likely outcome at this stage," Antonio Barroso, deputy director of research at Teneo, said in a note Monday.

Opinion polls show that the Socialist Party of Prime Minister Sanchez would win an election with 31% of the vote – this is up from 28.7% in the April election. The conservative party Partido Popular would come second with 19% of support, followed by the populist Podemos with 14% and the liberal party Ciudadanos with 13%.

It is unlikely that the country would have a new cabinet in place by the end of the year.

Antonio Barroso

Deputy Director, Teneo

"Elections are likely to produce broadly similar results," Federico Santi, senior analyst at Eurasia group warned in a note last Wednesday.

As a result, Pedro Sanchez would likely find himself at the negotiating table once again to get support for a new government, albeit with more parliamentary seats than he currently has.

"In any case, government formation would remain far from straightforward after a new election. In fact, since the vote would take place on 10 November, it is unlikely that the country would have a new cabinet in place by the end of the year," Barroso from Teneo said in his note.

The economy is indifferent to politics

Despite the political impasse for most of 2019, the Spanish economy seems to be holding up – even at a time when other euro zone countries are suffering from trade uncertainties, slowdown in manufacturing and the Brexit impasse.

"While new elections would serve to prolong the uncertainty, leaving Spain without a fully-capable government for the better part of 2019, this is unlikely in and of itself to undermine the country's economic outlook," Santi from Eurasia said.

He added that the outlook for the Spanish economy "remains positive".

Spain is expected to grow at a rate of 2.2% this year and 1.9% in 2020, according to the Organization for Economic Co-operation and Development (OECD).

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