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Independence drive takes heavy toll on Catalan economy

  • Published at 03:03 pm December 15th, 2017
Independence drive takes heavy toll on 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. Here is a breakdown of the economic fallout for Catalonia since the contested October 1 vote and the subsequent declaration of independence, which prompted Madrid to dismiss the regional government and call new elections for December 21.

Tourism cools

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 5% 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% from the year earlier. Tourism generates about 12% of Catalonia's GDP.

Employment and spending sag

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% -- have frozen investment plans. The crisis has also hit retail sales overall, which fell 4% 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% from 2.6%, a marked decline from the 3.1% expected for 2017. Since then, Prime Minister Mariano Rajoy has pledged that growth could return to 3% next year if "normalcy" returns to the region after the December 21 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.
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