From bad to worse

Partly because it fears an economic hit from the Catalonian independence issue, the Spanish government has lowered its GDP growth forecast for Spain in 2018 from 2.6% to 2.3%. But it has not yet altered its projection of 3% growth for this year, even though the economic effects of this fraught conflict are already emerging.

They are most obvious in Catalonia, a part of Spain ruled by separatists who claim that the region would be better off as an independent state. Yet according to Spain's company register, around 700 businesses have taken their headquarters out of Catalonia since October 1st, when Catalan president Carles Puigdemont held an illegal independence referendum. Among them are the region's two biggest banks, Banco Sabadell and Caixabank, who lost 6.3% and 6.8% of their share value respectively in the wake of a plebiscite tainted by violence.

Tourism is being affected as well. The industry lobbying group Exceltur reported this week that visitor activity in the region has slumped by 15% since October 1st and that hotel and transport reservations from now until the year-end are down by 20%. If the latter figure holds good, said Exceltur's vice president Jose Luis Zoreda, Catalonia's takings from tourism could fall by almost 1.2 billion euros in the final quarter of this year. Zoreda added that the overall drop in activity could reach 30% if the conflict between Barcelona and Madrid spills over into next year, which it almost certainly will.

There are still optimists around, though. In a research note released by London's City University this week, two of its professors weigh up the economic effects of secession for Catalonia and the rest of Spain. After glibly speculating that each side would have to pay transition costs, the economists conclude that “both new states are viable, and they could well be better off in the long run”. Readers of this somewhat naïve document are also assured that “mutually beneficial agreements would unavoidably be pursued” between Barcelona and Madrid in the wake of secession. Just like “mutually beneficial agreements” are being “unavoidably” pursued now, one supposes.

On the contrary, the Catalonian saga has so far been a masterclass in how to exacerbate a serious and divisive political problem. Mariano Rajoy's government is readying itself to activate the hitherto-unused Article 155 of the Spanish constitution and effectively take over the Catalan government - an extreme course of action, even in the context of this bitterly-fought battle. It seems safe to say, then, that the chances of negotiation between Barcelona and Madrid are at zero, which is one of the reasons why companies are fleeing Catalonia in their hundreds. Unfortunately, the only “unavoidable” thing about the secession issue as it now stands seems to be further conflict and division. Things are going from bad to worse.