“Everything Has Come to a Standstill”: Political Fallout Hits Business …
On Friday, Spain s benchmark stock index, the Ibex 35, plumbed depths it had not seen since the worst days of 2013, the year that the country s economy began its miraculous recovery. Of the 35 companies listed on the index, 15 (or 40%) are to quote El Economista against the ropes, having lost over a third of their stock value in the last 9 months. Only one of the 35 companies the technology firm Indra is still green for 2016. This doesn t make Spain much different from other countries right now, what with financial markets sinking in synchronized fashion all over the world. What does make Spain different is that it has no elected government to try to navigate the country though these testing times, or at least take the blame for the pain. Inevitable comparisons have been drawn with Belgium, which between 2011 and 2012 endured 541 days of government-free living. However, Spain is not Belgium: its democratic system of governance is younger, less firmly rooted, and more fragile, and its civil service is more politically compromised.
To make matters worse, Spain s richest region, Catalonia, which accounts for 20% of the country s economy, bucked expectations last week by cobbling together a last-minute coalition government that seems intent on declaring independence within the next 15 months. Meanwhile, business confidence, the cornerstone of any economic recovery, is beginning to crumble. Spain s leading index of business confidence, ICEA, just registered a drop of 1.3%, breaking a straight eleven-quarter run of positive results. For the first time in almost three years more business leaders are pessimistic than optimistic about the economy s outlook. This should come as little surprise in a country where unemployment is still firmly on the wrong side of the 20% mark, over a quarter of the new jobs created last year had a contract lasting less than one week, and public debt is higher than it s ever been [read: Six Nagging Facts About Spain s Recovery ].
And now that there s no elected government in office, businesses that depend on public sector contracts, including the country s heavily indebted construction and infrastructure giants, face weeks or perhaps even months of inertia.
Everything has come to a standstill, a contact in a Madrid-based research consultancy told me. No decisions are being made, no funds are being released. It s a vacuum.
For the moment, the political backdrop has had limited impact on the price of Spanish government debt. The 10-year yield is at 1.75%, below the 10-year US Treasury yield, though it s up a smidgen since the general elections on December 20. In its latest update, S&P left Spain s rating unchanged, predicting 2.7% growth for 2016, despite the prevailing mood of political and economic uncertainty. In a similar vein,
- ^ Original newz story – Click here (wolfstreet.com)
- ^ WOLF STREET (wolfstreet.com)
- ^ El Economista (www.eleconomista.es)
- ^ registered a drop of 1.3% (www.elblogsalmon.com)
- ^ Six Nagging Facts About Spain s Recovery (wolfstreet.com)
- ^ wolfstreet.com (wolfstreet.com)