Catalonia the Big Challenge for Spain's Sanchez, Survey Shows

(Bloomberg) -- The separatist challenge in Catalonia is the most important issue for Prime Minister Pedro Sanchez as his new government starts to administer Spain, a Bloomberg survey of economists showed.

On the economic front, agreeing on a new funding system for Spanish regions is the main task facing Sanchez’s Socialist-led administration, according to a Bloomberg survey of 12 economists.

Sanchez takes office as a Spanish economy in its fifth year of growth starts to face headwinds from a surge in fuel prices and the prospect of higher interest rates next year. A key test will be how he manages tensions with the separatist government in Catalonia after former regional President Carles Puigdemont tried to declare independence from Spain last October.

Catalonia the Big Challenge for Spain's Sanchez, Survey Shows

“The Catalan crisis is an unprecedented and extremely relevant issue for Spain,” said Angel Talavera, a London-based European economist at Oxford Economics, who took part in the survey. “Spain is highly leveraged -- so it’s a significant risk having this kind of crisis permanently there because you can’t really know when markets will get worried.”

Five out of 12 economists surveyed by Bloomberg consider that dealing with the Catalan issue should be Sanchez’s main priority. Four economists said that he should concentrate on fixing the labor market, while three said Sanchez should focus on tackling the budget deficit.

Asked which were the most important economic challenges facing Sanchez, six out of the 12 economists cited the need to reform regional finances. Catalonia accounts for about a fifth of the Spanish economy.

The ECB is preparing to phase out its six-year-old bond purchase program which has acted as a safety net for heavily-indebted nations such as Spain.

©2018 Bloomberg L.P.