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ECONOMY

Explainer: How the independence drive has stalled the Catalan economy

The Catalan economy, one of the most dynamic among Spain's regions, has stalled this autumn during the independence push by its leaders, though analysts aren't yet sure about the long-term consequences.

Explainer: How the independence drive has stalled the Catalan economy
Photo: AFP

Here is a breakdown of the economic fallout for Catalonia since the contested October 1st vote and the subsequent declaration of independence, which prompted Madrid to dismiss the regional government and call new elections for December 21st.

Tourism cools


Visitor numbers are down at the Sagrada Familia, Spain's most visited tourist site. Photo: AFP

The violent skirmishes between voters and police trying to halt the vote, and the huge demonstrations by both pro- and anti-independence factions, have prompted many visitors to steer clear of Catalonia, the most visited region of Spain.

The number of visitors dropped five percent in October after increasing during the previous eight months, even after the terror attack in Barcelona and nearby Cambrils in mid-August.

And tourist bookings at Barcelona hotels for the first quarter of 2018 are down about 10 percent from the year earlier.   

Tourism generates about 12 percent of Catalonia's GDP.

READ ALSO: How the Catalonia crisis has paralyzed Spanish politics

Employment and spending sag


Businesses closed during a general strike, called after the referendum to protest police violence at the polls. Photo: AFP

More than 400,000 people work in the tourism industry, where the traditional end-of-season spike in unemployment was “more accentuated” this year, according to the Pimec employers' association.

Jobless numbers rose again in November, even as they declined in Madrid.    

A study by the ESADE business school found that one-fourth of Catalan employers have scaled back hiring plans for next year, and nearly half — 46 percent — have frozen investment plans.

The crisis has also hit retail sales overall, which fell 4 percent in Catalonia in October compared with a stable reading for Spain as a whole.    

The pace of car sales, seen as a key indicator of consumer confidence, slowed sharply in October and November, backing the positive trend at the national level.

Companies flee, boycott risk

Catalonia generates nearly a fifth of Spain's GDP, but uncertainty about the independence drive has made businesses nervous.   

About 3,000 companies have transferred their legal headquarters — but not their employees — elsewhere, either because of doubts about their legal status in case of secession, or a risk of having their products or services boycotted.

Banks in particular, including CaixaBank and Banco Sabadell, worry that they could be cut off from access to European Central Bank financing.    

The decision was also aimed at reassuring clients after huge cash withdrawals.

The moves have dented the region's business-friendly reputation and could make it harder to lure new companies in the future, though the central government in Madrid has called on companies to return to the region.

Cloudy prospects

In October the Spanish government lowered its 2018 growth forecast to 2.3 percent from 2.6 percent, a marked decline from the 3.1 percent expected for 2017.

Since then, Prime Minister Mariano Rajoy has pledged that growth could return to 3 percent next year if “normalcy” returns to the region after the December 21st vote.

But in case of a prolonged crisis, the Bank of Spain has warned of the risk of recession for the next two years, as nervous consumers hold back on major spending decisions, such as homes or cars.

“The negative impact will depend largely on how long the uncertainty lasts and its intensity,” said Miguel Cardoso, chief economist for Spain at BBVA bank.

By Emmanuelle Michel / AFP

ECONOMY

Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).

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