Cost analysis

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.