FXStreet (Delhi) – Research Team at Societe Generale, suggests that Spain is heading towards the most indecisive general election since the return of democracy in the late 1970s, with the most recent polls pointing to a hung parliament.

Key Quotes

“Based on these polls, a pro-market coalition (PP-Ciudadanos) is the most likely outcome, though we acknowledge that polls have been wrong in the past. The key questions in the weeks after the election relate to whether the two parties will reach an agreement, how rapidly they will do so, which form the government will take and how stable the coalition will be.”

“We assume that a new government will take office only during the second half of January at the earliest but that political instability is here to stay. This political instability, together with a lack of a reform agenda in most electoral manifestos, will reduce the likelihood of significant fiscal consolidation or structural reform even after the election. This puts the sustainability of Spain’s public debt at risk over the medium term.”

“According to the latest opinion polls, the new parliament will be fragmented and a coalition will prove necessary for the first time in modern Spanish history. Indeed, the median poll result indicates that the ruling PP is set to win the most votes but will fall well short of the 176 seats needed for an absolute majority (22.7% of the votes, 117 seats). PSOE is set to come second with 20.8% of the votes and 83 seats, closely followed by Ciudadanos (18.3% and 64 seats) and Podemos (17.9% and 55 seats). While a pro-market coalition (PP-Ciudadanos) remains our base-case scenario, the latest official polls released on 12-14 December marked a clear loss of momentum for Ciudadanos to the benefit of Podemos.”