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The ongoing row over independence between the Spanish government and Catalonia is sparking an exodus of company headquarters from the region, with predictions of economic disruption for both parties if the dispute is not settled soon. Greg Campbell-Cohen reports.

As the Spanish government struggles to rein in Catalonia’s independence movement, financial analysts and business leaders fear the political unrest will harm both regional and national economic prosperity. Already, thousands of companies previously headquartered in Catalonia have opted for re-domiciliation.

Catalonia’s independence referendum, held on October 1, was a resounding triumph for the region’s separatist movement. With 90% of votes cast in support of secession, and Catalan president Carles Puigdemont’s subsequent declaration of independence, the prospect of an independent Catalonia seemed within reach.

Now, just a month later, the legal and political uncertainty of the independence project has sent the market scrambling, with concerned businesses and investors hedging against the possibility of an independent Catalonia that could be subjected to prolonged exclusion from the single market. More than 2400 companies have already moved their legal headquarters out of the region, with more likely to follow. “This means that Catalonia is losing tax income,” said Steven Trypsteen, an economist at ING Belgium.

Mr Trypsteen believes this period of instability has broader political and economic implications for the central government. “The incredible recovery of the Spanish economy could be in danger. This crisis has already lasted for a long time, and it does not seem that an easy way out is possible,” he said. “[Prime minister Mariano] Rajoy has lost the support of the Basque Nationalist Party. It will be difficult to approve the budget for 2018.”

Peter Ceretti, Europe analyst at the Economist Intelligence Unit, said it expects “high levels of uncertainty to lead to precautionary household saving in the region and reductions in business investment, which will have a negative effect on real gross domestic product [GDP] growth in Catalonia in the fourth quarter of 2017 and next year. These effects will be mirrored to a much lesser extent in other parts of Spain”.

“Provided that the resolution to the crisis is relatively benign, in line with our baseline forecast, we expect Spanish real GDP growth to slow to 3% this year and to 2.1% next year. This is a downward revision from 3.2% in 2017 and 2.8% in 2018 previously.”

But, he added, the impact on the Catalan economy “could be much more negative”.

In an interview with Belgian newspaper Le Soir, Mr Puigdemont expressed his willingness to compromise with the Spanish government, backtracking his bullish rhetoric on Catalan independence. Whether his diplomatic overture comes too late to restore consumer confidence remains to be seen.

This article is sourced from fDi Magazine
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