A strong economy may not be enough to sway Spain’s election
Lead — Spain's economy continues to show robust performance, outpacing the broader eurozone, yet this economic strength is not translating into political advantage for Prime Minister Pedro Sánchez ahead of the elections. Per the full note , despite a 0.6% GDP growth in 3Q, rising unemployment and inflation, along with public safety concerns, are casting shadows over Sánchez's re-election campaign. This mixed economic narrative could be crucial for currency markets, especially if the perceived disconnect between economic performance and political stability persists. With no significant calendar events ahead, traders should monitor the evolving political dynamics closely.
What the desk is arguing
The desk frames this situation as indicative of a mixed outlook for Spain ahead of the elections, spotlighting how strong economic indicators fail to bolster the incumbent party's electoral chances. Per the source, GDP growth of 0.6% quarterly and 2.7% annually reflects a solid economy, yet rising unemployment and public service criticisms muddy the waters.
This paradox raises questions about voter sentiment and priorities, especially when correlated with the tragic recent train accident and existing corruption allegations against the ruling party. Thus, while Spain's economic metrics are typically supportive, the socio-political landscape creates headwinds that could impede the currency's performance.
Where it sits in our coverage
Consensus forecasts for the EUR/USD pair position it at 1.075 within a range of 1.04 to 1.12. Notably, jpmorgan aims for a target of 1.10, suggesting a level of optimism regarding the euro’s strength, while bofa shows caution with a lower target of 1.04.
This outlook suggests a divergence where our view leans towards a more constructive outcome compared to the lower end of the spectrum, indicating potential upside volatility in the Euro against the dollar if the political landscape stabilizes.
How other firms see it
Firms like jpmorgan and citi share a bullish stance on the euro, forecasting a stable economic environment, whereas bofa counters with a more bearish view, concerned about potential electoral instability. This positions the euro-dollar dynamic as particularly sensitive to domestic political events and overarching economic indicators.
Relevant macro indicators to watch include unemployment rates and inflation figures, as they directly impact voter sentiment and governmental approval ratings, affecting the euro's trajectory against the dollar.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Spain's GDP grew by 0.6% in 3Q, outperforming eurozone growth.
- 02Political issues, including public safety and corruption, overshadow economic performance.
- 03The outcome of the election may heavily influence Spanish currency stability.
- 04Traders should monitor unemployment and inflation rates closely.
Market implications
Traders should keep an eye on the 1.075 level for EUR/USD, which may serve as a psychological resistance, while political developments could lead to volatility in either direction. The ongoing electoral narrative will be crucial for positioning in the cross.
Risks to this view
A shift in public sentiment due to worsening economic conditions or further political scandals could significantly undermine confidence in the euro, leading to a marked depreciation against the dollar. Any substantial change in unemployment or a spike in inflation could also shift market expectations rapidly.
Articles A strong economy may not be enough to sway Spain’s election Published 08:45 Spain Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Spain's economy continued to outperform the eurozone's in 3Q, despite rising unemployment and inflation near 5%. A month before the election, housing remains a key issue, alongside migration, political controversies, and concerns about public infrastructure and services. Yet strong growth is translating into more limited gains per person Pablo Muylle Spanish Prime Minister Pedro Sánchez at an election campaign event in Granada Spain’s general election campaign has been overshadowed by Wednesday’s deadly collision between two high-speed trains near Urda, in the Toledo province.
At least 69 people were killed and dozens injured, prompting most major political parties to suspend their campaign activities. The circumstances remain under investigation. However, with the central government responsible for managing the national rail infrastructure, the accident is likely to put rail safety and the government’s handling of public services at the centre of the political debate when campaigning resumes.
Alongside existing controversies, including corruption allegations involving figures associated with the Socialist Party, it could further complicate Prime Minister Pedro Sánchez’s re-election campaign. When campaigning resumes, attention will return to an election in which the economy presents a strikingly mixed picture. Spain remains one of the eurozone’s strongest performers, yet this has not translated into a lead in the polls for Sánchez’s Socialist Party.
The latest figures illustrate that tension. GDP expanded by 0.6% quarter-on-quarter in the third quarter and by 2.7% compared with a year earlier. Growth therefore slowed only modestly from the previous quarter and remained well above the pace recorded in most other large eurozone economies.
The labour market data was less favourable. The unemployment rate increased from 9.87% to 10.18% in the third quarter. Employment rose by 73,600, but the labour force expanded by 169,500, leaving an additional 95,900 people unemployed.
Private sector employment declined during the quarter, while public sector employment increased by almost 90,000. Inflation adds to the mixed picture. Harmonised inflation remained at 4.9% in October.
Retail sales fell by 1.4% year-on-year in September, following a revised 0.5% decline in August, adding to signs that consumer demand has softened. Source: LSEG Workspace, INE, ING Economic Research Why Spain is voting early The election on 29 November comes about eight months before the parliamentary term is scheduled to end. The centre-right People’s Party won the most seats in the 2023 election but could not assemble a parliamentary majority.
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