The priority for the next government after this weekend’s general election in Spain will be to act quickly to restore investor confidence, according to Angel Martínez-Aldama, director general Inverco, the Spanish asset management and pension funds association.
Spanish finance minister Elena Salgado said on Thursday that the economy would grow by about 0.8% this year, below an earlier 1.3% government target, and warned it was too early to know if the country’s autonomous regions would meet their own deficit reduction targets. The new growth estimate is more in line with the 0.7% recently forecast by the European commission. In spite of teh slow-down, Salgado said the government was still expecting to meet its budget-deficit target of 6% of GDP for this year.
Creating new jobs and labour market reforms will present some of the biggest challenges for the new government.
Mariano Rajoy, the People’s Party leader has outlined a broad programme of reforms to deal with unemployment and clean up the banking system. He has pledged to introduce tough austerity measures to bring down the public deficit to 4.4% of GDP next year.
Restoring confidence will depend on progress on all these fronts, but may still not be enough. The outgoing socialist government pushed through several reforms in the past year, but these failed to calm the markets, said Martinez-Aldama. “The new government must implement more reforms. This will have a positive effect. Almost 70% of assets under management are invested in fixed assets and about half of that in sovereign public debt and spreads are increasing every day,” he said. More should also be done to remove obstacles faced by Spanish mutual funds operating internationally, he said.
The government will need to deal with the country’s banking sector which is still struggling to overcome the combined impact of a domestic housing market collapse and the wider eurozone sovereign debt crisis.
Many reforms are likely to be unpopular, but people appear to be more prepared to accept tough measures than in the past. The Zapatero government imposed a wage cut on civil servants without major upheavals. The new government will have a short window of opportunity to set out its programme. “Until then, it is a question of wait and see,” said Martínez-Aldama.