Spain: Back to negotiations, but new elections seem increasingly likely in June
Today the Spanish parliament will vote again on the candidacy of the minority centre-left coalition (Psoe, driven by leader Sanchez, and Ciudadanos). However, according to rumors, changes are not expected from the first vote that saw Sanchez in net minority and therefore new elections seem increasingly likely in June.
A simple parliamentary majority (176 votes) would suffice for the government to be appointed. However, the coalition is unlikely to garner the necessary support, given that the two other main parties – the conservative Popular Party (PP) with 123 MPs, and the radical-left Podemos, with 69 MPs – have far more votes than Pcoe-Ciudadanos and both have stated that they will vote against the measure. If the Psoe-Ciudadanos coalition loses, all political parties would have to return to the negotiating table. King Felipe VI may need to nominate another candidate to try to form a new government.
There is a maximum of a two-month period (starting 2 March) for the parliament to approve a new government. Failure to do so would automatically trigger a new general election, which would take place about eight weeks later – possibly by the end of June (close to the UK referendum).
"We now believe another election is more likely", Barclays says waiting for the vote. "We also see another potential scenario that could avoid another election; namely, that some members of the PP, including incumbent Prime Minister Mariano Rajoy, step down". The Popular Party has been linked to several corruption scandals in recent months, which makes it unlikely that the PP, under Mr Rajoy's leadership, could form a coalition government with other political parties. "In our view, Mr Rajoy’s departure could open the door to another round of negotiations and even, possibly, a coalition government led by the PP. In any event, new elections probably would mean that some PP leaders may need to step down in order for the party to preserve its comfortable lead in the polls", Barclays continues.
On the macroeconomic side, the broker has not seen any hard data thus far that would signal a slowdown in activity relative to fourth quarter 2015, when the economy expanded 0.8% q/q. "Therefore, we now believe our forecast that growth will slow towards 0.54% q/q in first quarter 2016, driven elevated political uncertainty, faces considerable upside risk". Barclays maintains its view that political uncertainty eventually will weigh on investment and consumption, thereby slowing GDP growth to 2.6% in 2016 from 3.2% in 2015.