Catalan independence would unsettle financial markets

Significance

The turmoil triggered by the unauthorised Catalan independence referendum on October 1 will weigh on Spain’s recent strong growth performance, test the coalition governments of Mariano Rajoy in Madrid and Puigdemont in Catalonia, create instability in Spanish financial markets and possibly spill over into the rest of Europe.

Impacts

• Catalan banks could see an outflow of funds if anti-Catalan feeling grows in the rest of Spain and on concern over the security of deposits.
• Catalan companies might see declining sales across the rest of Spain, though many large firms are cushioned by overseas revenues.
• Unless tensions escalate, market impacts will be limited and restricted to Spain.
• If Catalonia were to proceed to break away from Spain, there would have to be a transition period, with the final outcome uncertain.