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THE EURO ZONE

Hypothetically speaking

The Bank of Spain has released its first official estimates on the economic impact of the Catalonia crisis, and they're just as vague as you'd expect. The bank predicts that the recent turmoil seen in the north-eastern region of Spain could shave off anywhere between 0.3% and 2.4% off the country's GDP over the next two years. In hard currency, that equates to a dent of between 3 and 27 billion euros. If that seems like an awfully big gap, it's because the task of predicting how much longer this sorry affair will last is practically impossible.

In making its catch-all forecast, the bank's economists imagined two extreme hypothetical scenarios playing out. In the first of these, Scenario A, the Catalonia affair is tied off by the end of this year and the Spanish economy takes a relatively minor hit of around 3 billion euros. The bank obviously has to allow for the possibility of such a swift resolution to Spain's constitutional crisis, but it would be incredibly optimistic (to put it mildly) to believe that, in less than two months, the curtain will have gone down on the Catalonian drama.

For a start, exiled pro-independence Catalonian president Carles Puigdemont might remain in Belgium until early 2018. And so long as he is in exile - seen by followers both old and new as a martyr for democracy, willing to go to prison for his people - the Catalonia drama will lack a political resolution and separatists will retain a powerful spokesperson.

The only real possibility of Scenario A materialising depends on anti-secession parties coming out on top in the snap regional election Mariano Rajoy has called for 21st December. Yet according to a GAD3 poll for La Vanguardia newspaper last weekend, pro-independence parties would jointly win between 66 and 69 seats in the 135-seat parliament, giving them a slim majority. A contemporaneous poll for the newspaper La Razón found that secessionist parties would gain the most seats (65) but not a majority.

Scenario B sees the Catalonia crisis causing “severe and prolonged risk” to the Spanish economy and continuing for the next couple of years. If this situation played out, the bank estimates that Spain's GDP growth over the 2018-2019 period could be reduced by up to 60% and that Catalonia could suffer a full-blown recession.

For the battle over Catalonia to rage on into 2019 would be a terrible thing for Spain, a country whose economy is still fragile despite three years of expansion. It would, of course, be a political and social disaster too. Yet given the current level of animosity between Rajoy and the separatists and the uncertainty surrounding the December 21st election, it's not unthinkable. Hopefully, reality will fall somewhere in the middle of the bank's two extreme hypotheses.