By Roger Pike
The view inside the crystal ball looks a little murky for 2017. After the notorious and largely unexpected events of 2016, things happening in far-away lands may deal a blow to the best-laid plans at home, so predicting becomes a risky business.
In Spain, two circumstances will shape the year for business and finance. First, the minority Government needs opposition support to pass legislation, so radical changes are unlikely. Second, getting the budget deficit down will dominate economic policy. With no consensus likely on unpopular spending cuts, and for want of better ideas, that means tax rises.
No clairvoyant powers at work here: the Government has already shown its hand. Companies will bear the brunt and will in effect have to pay tax on estimated profits before they are even made. Consumers will be hit, some more than others, by hikes on alcohol and tobacco duty, as well as a new tax on sugary drinks. Beer and wine are excluded, but rum and coke drinkers will face a double whammy.
Even so, don’t expect the Government to hit the deficit targets. The tax changes may affect growth. The consensus is for GDP to grow at 2.5%, still better than the other big Euro economies but down on 2016. Unemployment will continue to fall over the year but at a slower rate. The Madrid stock exchange has rallied in recent weeks and is around the levels of last year’s close. The crystal ball looks especially fuzzy on what shares will do in 2017 and with so many imponderables, better just to toss a coin.
All that said, in Madrid there’s plenty going on. Two big construction projects could get the green light and give a welcome boost to employment. Developers have lined up €6bn to regenerate a huge slug of land to the north of Chamartin train station. The project was first conceived over 20 years ago but has been bogged down by legal and administrative problems. They will need to convince the Town Hall that creating tens of thousands of jobs and regenerating a shabby part of Madrid is not necessarily speculation.
US group Cordish has presented plans for a €2bn leisure project. Those who recall the Eurovegas saga may well be cynical, but whereas its promoters demanded tax concessions, changes in building regulations and scrapping the anti-smoking law, Cordish hasn’t asked for special favours.
2017 will also see the Madrid authorities intensify efforts to attract City companies looking for a continental home after Brexit. Although there’s little immediate danger of being overrun by pin-stripe suits, we expect some success here. Meanwhile, Madrid entrepreneurs will continue to increase presence in the burgeoning Fintech and start-up market, and anyone doubting Madrid’s creativity should take a walk round the Salon Mi Empresa fair in February, where you won’t find many young madrileños pursuing the traditional dream of being civil servants.
So with the optimism inherent for the start of a new year, and with a wary eye on what the outside world can throw at us, businesses in Madrid have reasons to be upbeat about 2017. And little to gain by fearing the worst.
WH Advisers – Helping international businesses to understand Spain www.whadvisers.com