Catalan political crisis still far from an economic one

The Catalan Government could achieve independence without Spain’s consent if a critical mass of people and firms were on board. This would be negative for the rest of Spain. Spain’s government’s debt-to-GDP ratio would jump and the budget deficit would widen substantially. To stabilise its finances, the Spanish government would have to cut spending or raise taxes, causing growth to slow sharply. But it is extremely unlikely that independence will be achieved this way. While the political crisis might drag on, we do not expect it to have dramatic economic effects. Our best guess is that the situation might knock at most 0.5%-pts off annual Catalan GDP growth for as long as it lasts. As Catalonia makes up 19% of Spain’s economy, the direct effect would be to detract up to 0.1%-pts off Spanish GDP growth.