Estimates for the potential cost to Spain of the Catalonia crisis are like those
of Brexit for the UK: in both cases, the figures are constantly changing, depending
on what side of the argument they’re coming from. The latest forecast regarding the
Catalan issue came from Spain’s economy minister Luis de Guindos, who told Spanish
radio on Monday that it will cost his country about a billion euros.
Although this was an offhand prediction, it does tell us one thing very clearly:
that De Guindos is concerned that the Catalan issue is far from being resolved. It
was probably also intended as a frightening statistic, one that will further encourage
independence parties in Catalonia to unite and form the region’s next government.
Compared to estimates made by the Bank of Spain in November, De Guindos’ damage forecast
is actually quite optimistic. In one scenario, the Bank envisaged the secessionist
issue being resolved by the end of last year, perhaps with the installation of an
anti-independence government after the December 21st elections. Total cost: 3 billion
euros. But in a worst-case scenario, the bank assumed that the crisis triggered by
the illegal independence referendum of October 1st (O1) would continue well into
2018 and possibly beyond. Total cost in that case? Up to 27 billion euros and the
possibility of a recession in Catalonia.
In other words, the Bank’s most optimistic prediction for the cost of the Catalonia
issue - based on assumptions that have since been proved false - was still two billion
more than that made by De Guindos this week. The bank’s Scenario A is now a long-gone
possibility, because the Catalan election on December 21st handed pro-independence
parties a slim majority in the regional congress (although they have yet to form
a government). Might De Guindos’ prediction that the independence crisis will cost
Spain a billion euros turn out to be absurdly optimistic?
As things stand, there is little reason to think so. Although Catalonia itself has
been hit hard by the fallout from O1 - over 3,000 companies have left the region
and tourism takings are down - the damage has so far been contained. Spain’s Q4 GDP
growth was 0.8% - the same as its Q3 expansion, suggesting that the country as a
whole has yet to register the effects of the latest Catalan independence drive.
The Spanish economy is likely to have expanded by 3.2% in 2017, sustaining its steady
growth of the last three years. That growth, it’s important to remember, has been
completely unaffected by the ten-month governmental vacuum of 2016 and the Catalonian
saga that dominated the final quarter of last year. Yet as we enter 2018, projections
for the economic impact of the Catalonia crisis will continue to express the profound
uncertainty felt by everyone involved