The ten plagues of Egypt will fall on Catalonia if it becomes independent. This is what the Spanish government repeatedly argues, above all the economy minister, Luis de Guindos. However, ratings agencies also predict a dark future for a Catalan republic. Some threats and forecasts see the independence process sinking the Catalan economy. Something that has not happened. The Catalan economy continues to be robust, despite the process.
Warnings
Moody's has warned of the negative consequences for the Catalan and Spanish economies should Catalonia be proclaimed independent, a scenario it does not believe will happen and which it sees as “irrational”. The economy minister suggests that a hypothetical independent Catalonia would have a powerful commercial and financial impact that could cause a fall in GDP of between 20 and 30%.
But also S&P and Fitch warn that the main risk for Spanish sovereign debt is Catalan independence. Spain has a debt of 1.1 trillion euros (100% of GDP) with an approved rating, while the rating for Catalonia is way down with negative perspectives, and a debt of 75.400 billion (35% of GDP).
Guindos believes that Catalonia will remain outside the European Union and the Eurozone and that will mean "some 75% of production by Catalan companies will become subject to tariffs," a situation that does not even happen with products from Norway, Switzerland or Morocco. Guindos also believes that “a new currency would have to be created,” a totally unlikely scenario, because each country can choose the currency it wants, such as Andorra choosing the euro. Moreover, Guindos believes that “this supposed currency would have to be devalued by 40%,” something that would improve Catalan exports, and therefore would have little impact on GDP.
Flying high
Whatever the case, the economy has continued. And foreign companies do not seem to have uprooted their HQs and settled on the other side of the Ebre or the Sènia rivers. In fact, new international companies have even announced they are opening offices in Catalonia, and have done so knowing about the October 1 referendum. The strength of the Catalan economy does not seem to have been affected by the political events.
Catalan GDP has grown quarter after quarter to above the Spanish average and the unemployment rate has remained lower than the Spanish rate during the whole crisis. The last official survey of the workforce supports this trend: unemployment in Spain is 17.2% and in Catalonia it has dropped to 13.2%. Industrial production has also grown, the main driver of the economy and employment in Catalonia.
Another of the biblical plagues predicted for Catalonia is that foreign companies will flee the country. Nothing could be further from the truth. Large companies and multinationals have announced they are coming to Catalonia. Perhaps the best example is Amazon, which has just announced that it will open a research and development centre, apart from its large logístics centre in Prat de Llobregat. But there is also Tesla, Thunder Power, Volkswagen and a long list of others. And all of them are coming with the reports from Bank of America, Merrill Lynch, ING, Moody’s, JP Morgan and Goldman Sachs out in the open.
As for foreign trade, the fear of secession has made itself felt. Catalan exports are higher than ever. With the financial crisis and the fall in domestic consumption, Catalan companies understood that the international market would be the key to growth. Catalan exports reached record numbers for the sixth year in a row in 2016, at 65.1 billion euros, some 2% more compared with the previous year and the highest figure ever.
Moreover, foreign investment has not stopped growing in recent years. In 2012, some 2.69 billion euros were invested in Catalonia. Last year, this figure reached 5.13 billion euros. In five years, foreign investment has gone up by 90%. And the trend is for it to continue. Foreign investment in Catalonia is maintaining a good pace and in the first quarter of this year, stood at 1.57 billion euros, some 20.6% more than in the same period last year, according to figures by the economy ministry.
The central government states that international investments are due to foreign firms not believing that independence is credible, and they also blame the independence movement for the relocation of companies. It is a theory that Catalan business associations have shown is not true. In fact, on average, the number of relocations of companies away from Catalonia was at its highest between 2008 and 2010, before the sovereignty process began in earnest.
While Catalonia has continued to cut the deficit of its public finances by 2.8% in 2015 and 0.93% last year, Spain has not reduced government debt by a single point in the same period. And all of the time under pressure from Brussels for budgetary controls over the autonomous communities while tying them up with the Autonomic Liquidity Fund. At the same time, the Catalan government’s debt has been going down, with the state as its main creditor, at 50.6 billion euros.
Resolving things through the ballot box is something that has been entirely ruled out by the government of Mariano Rajoy. The economy minister has flirted with the possibility of negotiating a new financial arrangement with Catalonia -which would require constitutional change- but in the end it was ruled out. This new arrangement would answer one of the main claims of the independence movement: having the key to the strongbox and eliminating the fiscal deficit. It is a deficit that the tax office put at 9.8 billion euros in 2014, the equivalent of 5.02% of Catalan GDP, according to calculations by the Public System of Accounts. It is a figure that shot up 38% between 2013 and 2014.