AXA - Spain: a political coalition is in the making

The Spanish general elections will take place on 20 December. Our baseline scenario is that the ruling Popular Party (PP) will continue to lead but fall short of a stable majority (above 40%). Two parties may come second: the rising centre and liberal Ciudadanos (Citizens), now neck-to-neck with the Socialists (PSOE) in the polls, while left leaning Podemos has lost momentum, at least according to the polls. The most likely coalitions, PP/Ciudadanos or PSOE/Ciudadanos, should be moderate and market-friendly. The main risks we see in the medium term is the lack of additional reforms that Spain needs to secure a higher potential growth in the longer term.