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Danske Bank analysts point out that for the Spanish economy, on Sunday, voters will head to the polls for the fourth time in eight years and latest polls point to a clear possibility of a hung parliament resulting from the election, with both the traditional centre-right and centre-left alliances short of an absolute majority.

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“While the PSOE is still riding high among voters, and is on track to add some 50 seats to its current 84 according to the latest polls, the far right Vox party is also showing strong momentum after taking a hard stance towards the Catalan separatists and it might even become the fourth largest party ahead of Podemos.”

“A majority for a centre-left alliance between the PSOE, Podemos and the Catalan and Basque nationalists could be within reach, but its ‘shelf-live’ might be limited in light of the still unresolved Catalan question. Furthermore, the election campaign has seen parties moving away from the political centre, positioning themselves more clearly at the political left (PSOE) or right (Cuidadanos, PP), which in turn could further complicate the coalition-building process ahead.”

“Although the election might again result in a prolonged period of political uncertainty, the Spanish economy has been fairly resilient to previous such episodes even at the peak of the Catalan crisis in 2017. Hence,irrespective of the election outcome, we still expect the Spanish economy to do well and outperform the euro area in the coming years.”

“Markets remain complacent despite the possibility of renewed political uncertainty in Spain. The economy remains on a strong footing, the rating outlook is stable with very limited risk of significant fiscal easing, and the risk of a Eurosceptic government is small with the three leading parties all having pro-EU views.”