UBS | In this report, we focus on three pivotal questions that we consider crucial for investing in any security in Spain: First, what is the economic outlook for 2016/17, and what are the biggest economic policy challenges that the next government will face? Second, what are the likely scenarios for the outcome of the elections on 26 June? And third, what is the valuation and relative attractiveness of Spanish assets, how will asset markets react to different election outcomes, and what is or is not priced in?
Ten million Spaniards watched the most important debate between candidates from the four parties which could form a Government in Spain on Monday night. And yet the participants did not clarify the most important point: Will there be a Government after the elections on June 26?
Economic forerunners from the four Spanish leading parties engaged themselves in a confusing TV debate on Sunday night. The moderator was much to blame as she hardly clarified the key policy issues, although the participants also proved unable to put forward a coherent analysis of what is at stake in these elections.
The thesis is reasonable and well-known: greater growth, lower deficit. But what happened in 2015 seems to corroborate another idea: a larger deficit (-5%) fuels the biggest growth in Europe (3.2%). So the government unilaterally raises the 2016 deficit target from 2.8% to 3.6%, while Brussels is going for 3.9%.