Much is being said these days about the sharp falls in equities in Spain as a result of Great Britain's decision to leave the European Union (EU). But not so much about direct and indirect repercussions that this measure will have on Spain and the life of the Spanish. Something completely normal in a globalized world like the current one, where economic relations they tend to link more frequently.
For now, there are thousands and thousands of savers who have left a good part of the capital invested in financial products by the wayside. Not only in the stock market, but in others that may be more forgotten, and that even its headlines may not know its real consequences. We do not refer in particular to investment funds, which are used by Spaniards to concentrate their savings, given the lack of alternatives offered by the main savings products (time deposits, bank promissory notes, etc.). And that as a whole they rarely exceed the 0,50% barrier that they provide to their applicants.
Pension plans are other major victims of this debacle in the Spanish stock market, and by extension in the European and world markets. Many of these financial products base their investment portfolio on equities, especially the more aggressive formats. And that in the face of this difficult situation, you will have seen how your life savings have been reduced as on few occasions. In some cases in a virulent way, and unusual in any case. As a consequence of them, savers will have less money on these products.
Effects on the economy in general
At a higher and more decisive level, one of the aspects that most concern citizens is how the British exit from the Community institutions will affect them in their day to day life. It will surely be one of the thoughts you have during these days. Not as much as some alarmist reports predict, but of course they will not emerge unscathed from this train crash on the old continent. So what will have its greatest exponent in employment as to the effects that this controversial decision will generate in the referendum.
For starters, several highly regarded rating agencies have already warned that Brexit will mean a cut of around half a percentage point on economic growth for next year. Currently the government's forecasts are on 2,7% that will show the Gross Domestic Product (GDP) for the next fiscal year. In any case, it will not have any impact, or it will be very little, for this current fiscal year, as stated by the Minister of Economy, Luis de Guindos.
What does this mean? Well, the effects on the Spanish economy will be more palpable from next year, and with the exception of tourism, as you can see later in this article. The contraction, albeit slight, in GDP will have an effect on employment, public financing, and even in the policy of adjusting workers' wages. Although all economists point out that the deviation of half a point in growth is not very striking as to affect the population in a very special way.
The first effect will be on tourism
There is no doubt that the first impact that the British departure will have will be in tourism, and from this summer. The reason is because the British pound will devalue significantly against our currency, the euro. And as a consequence of this, the flow of English tourists to our destinations will decrease significantly, starting this month. The latest data from the sector suggest that six million tourists visited our country in the last year. Therefore, the millions of euros that are collected for this concept will be much less. Affecting all companies in the tourism sector (hotels, restaurants, bars, discos, car rental, leisure, etc.).
In the absence of these clients, many of these companies will have no choice but to decrease its production, reduce services, and in some other cases, until the closing of the business (in coastal or island tourist destinations). And all this will mean that less staff is needed, so that the hiring in this business segment will be lower from now on. Not surprisingly, it will have a direct impact on the employment index, which will drop several tenths as an immediate consequence of the impact of Brexit on tourism.
It should be remembered that British tourism is the first issuer of visitors to Spain, according to the latest data provided by the Ministry of the Economy. Above French, Germans and Italians. From this perspective, it will greatly affect economic activity in Spain. In addition, the State will collect less money for this activity, affecting other items included in the General State Budgets.
Spain: lower exports
Another of the big losers in this tough economic battle will be the companies with interests in the UK. On the one hand, through its exports, which will reflect the new reality on geographical maps. Elimination of personnel, reduction of their benefits and a greater adjustment in their budgets will be one of the most direct consequences on the implementation of this measure.
The companies that are listed in the Spanish selective index will not be free, quite the opposite. Those most exposed to the English economy will be the most punished by the financial markets, as developed during the trading session of the stock market last Black Friday. Banco Santander, Sabadell, Ferrovial, Iberdrola or Telefónica will be some of the most affected by this event. With behaviors in its price worse than its peers in equities. And in any case, they will be the most dangerous to open positions in the markets from now on.
Atony in the real estate market
This sector so closely linked to brick will suffer the effects of this decision. As the pound loses its specific weight against the euro, many British users will reduce their position in the real estate market, especially the one whose reference point is the holiday segment. Do not forget that the English market is the most active to look for your second home in Spain.
As a consequence of this trend, there will be less activity in the sector. The effects are very clear, less work and a decrease in the profits of the companies that are dedicated to this important economic activity. And on the other hand, so linked to the growth of the Gross Domestic Product (GDP), which may fall by a few tenths from the second half of 2016. This is another factor that can deteriorate the Spanish economy from these approaches.
Increase in the risk premium
This problem seemed forgotten, but this past Friday, to the brutal falls in the equity markets, the rebound in the risk premium was added. Reaching levels of 170 points, and in any case, not seen during the last two years. This trend can be very harmful to the national economy. It is enough to check what happened four years ago to realize how serious this important macroeconomic data could rise again.
Its worsening would produce, among other things, that the difficulties to finance are greater. Or in other words, they would have a more demanding cost by applying a higher interest rate. This effect would have a direct impact on State expenditures, which would be more expansive. With the possibility that they were cut from other items more linked to citizens: health, social benefits or educational expenses.
If the spread with the German bond increases, which is exactly what the risk premium is, there would be a risk of raising taxes. Either directly, through VAT or the tax on the declaration of natural persons (IRPF), or indirectly, and depending on the government that was formed after the general elections held this Sunday.
Domino effect on other countries
However, the greatest danger for the interests of Spain will be that this process of separation will reach other community nations: France, Denmark, Holland, Sweden or Italy. And in which case, the process of European expansion would definitely collapse. And with dire effects for all Spanish citizens. Likewise, Spain would lose an important ally with regard to the establishment of the Transatlantic Treaty for trade and investment, known by its acronym: TTIP.
And finally, a purely accounting aspect, but of great relevance for the development of a country. It is none other than the less funding that the European Union will have, in the absence of Britain, which will be transferred to national interests, since it would have less aid to various productive activities, and of great importance for economic growth.
All these factors may lead the Spanish stock market to return to large-scale depreciations in the coming days. And that could develop with the appearance of some rebound than another in prices that could attract the attention of stock market users. To the point of encouraging them to enter the markets, taking advantage of the low price of shares.
Although in the last case we will have to wait for a few months to pass to gauge the repercussions that this measure approved by the English people will have last Friday. Not ruling out any possibility about its possible effects.