After eight months of political deadlock, socialist Prime Minister Pedro Sánchez was finally able to secure a simple majority in Parliament. The socialist party (center-left) and Unidas Podemos (left-wing) will govern together, pushing for more social spending and a partial reversal of the 2012 labor reform. Yet, the coalition will be fragile; the risk of early elections in the next year is moderate. The outlook for consumer-oriented sectors and SMEs will improve, and we see long-term benefits from productivity gains due to higher spending in education. Competitiveness will decline in the short term, and higher labor costs could indent profit margins (to below 40% of value added by 2023, down from a peak of 44.3%). Construction and services should be the most negatively impacted by a higher minimum wage, banking and energy by higher taxes, and real estate by rent control. More details in our latest report.
Authors
Georges Dib
Economist for Latin America, Spain and Portugal
Georges.DIB@allianz-trade.com