Acting Prime Minister Pedro Sanchez said the biggest threat to Spain’s economy is the prospect of the U.K. leaving the European Union without an exit deal next month.
Asked about the risks to Spanish growth in an interview at the Bloomberg Global Business Forum in New York, Sanchez, 47, said, “In the short term, Brexit — a no-deal Brexit — not only for Spain but for the global economy.”
British Prime Minister Boris Johnson has vowed to lead his country out of the EU on Oct. 31, whether he’s succeeded in negotiating a withdrawal agreement or not and is so far insisting that a turbulent departure remains on the table despite opposition from Parliament and the U.K. courts. A no-deal Brexit would pose a particular challenge to Spain which is home to the biggest contingent of British nationals on the continent and has deep business ties to the U.K.
Spain’s economy is already slowing after a six-year surge and deep-seated problems in the dysfunctional labor market have not been addressed. The unemployment rate is 14%, the second-highest in the EU after Greece.
Economists at the Bank of Spain expect output to expand by 2% this year, down from the 2.4% they forecast in June. While that’s a slowdown for Spain, the growth rate still easily outpaces the outlook for other major euro-area economies, with Germany on the brink of a recession and Italy stagnating.
Spaniards will face their fourth general election in as many years in November after Sanchez failed to secure support from rival parties to clinch a second-term as premier. Many voters are irked that their political leaders were unable to reach a compromise to form a government despite months of horse-trading following a vote in April. Pre-election polls show the outcome of the November ballot is unlikely to change much.
Sanchez’s center-left Socialist Party is set to once again win the greatest number of seats and remain far short of the majority he needs to be appointed prime minister.