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Spain: Consumer confidence falls on the back of political paralysis - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 3, 2016.

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    Geoffrey Minne, Research Analyst at ING, suggests that having reached an all-time high in December, Spanish consumer confidence declined both in January and February.

    Key Quotes

    “It is likely that the political uncertainty has started to come into play and weigh on households’ confidence.

    According to the last surveys of the Centre for Sociological Studies (CIS), the consumer confidence index decreased by 8.3 points MoM in January and 3.9 points in February to reach 95.2. The drop was mainly driven by the sub-indicator pertaining to the expectations of Spanish consumers that went from 119.6 in December to 102.7 in February. An explanation is that the Spanish consumer tends to be increasingly less optimistic about the evolution of the labour market. In December, 42.5% of the respondents thought that they would face better job prospects in the next six months, but this has since fallen back to only 32.2%. The slump is not limited to consumers as business confidence was also down in January. Knowing that about 0.7ppt of the 0.8% GDP growth in Q4 2015 can be attributed to consumption and private investment, the strong growth seen last year is increasingly looking to be at risk in Spain.

    The political paralysis seems to be at the heart of the confidence slump and recent developments are not likely to improve consumers’ sentiment in the next months. Yesterday, at the national Parliament, the first vote did not end up positively for the leader of the Spanish socialist party, Pedro Sánchez (130 vs 219 votes). Both Podemos and the PP vigorously opposed the project of Sánchez to have a “government of change” led by the socialists. Sánchez indicated that the PSOE has “no red line but strong convictions” meaning the door remains open for negotiation. The message was clearly addressed to Podemos and aimed at forming an anti-PP coalition. At the end of the day, unless one of the main parties steps aside, elections in June remain the most likely scenario.

    All in all, the political parties are sticking to their positions and we do not see anything positive in this political paralysis. The worst outcome might be that snap elections could lead to the same impasse and leave the country with an interim government for several months. The current impasse could soon be converted into a deeper political crisis. In our view, consumer confidence as well as business confidence are only the first signals of a temporary slowdown that is to some extend triggered by political uncertainty. To be sure, the pressure on political leaders is not expected to diminish.”
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