Catalonia a GDP of $255.20 billion with GDP

Catalonia is wealthiest region, and
has a long shared history with Spain (BBC, 2017). In 2017, Spain’s GDP was
$1.232 trillion with GDP per capita of $26,528.49 (Statistic, 2017). After the
succession, Spain will face a minor recession in their GDP due to the loss of
Catalan’s contribution. The recession will cause the unemployment rate to
increase and face uncertainty from investors due to the loss of major
industrial region of Spain (Ross, 2017). Causing the government to make
cyclical deficit as they continue to pull the economy out of its minor
recession. Due to the decrease of supply of goods in the market, the demand
would increase causing inflation that could further cause the economy to move
further in recession. Factors such as GDP, GDP per capita, growth rate,
inflation and unemployment would negatively affect the standard of living of
Spain’s population. However, Spain has international support from its allies
and government structure to make a fast recovery from the recession. According
to the 2016 projections, IMF (international monetary fund) estimates that
Spanish GDP will expand by 3.1% in the beginning of 2018; due to the services
and newly competitive export sectors (Khan, 2017) (refer to Appendix B). In
contrast to Spain, Catalonia will face long term economic impacts of the
separation. Similar to other region, it is dependent on Spain’s economic
structures and relations (refer to Appendix A). Catalonia has a GDP of $255.20
billion with GDP per capita of $33,580 as of 2017(World Bank, 2017) (refer to
Appendix C). In comparison to the other regions of Spain, Catalonia generates
€200 billion investments that is equivalent to 20% of Spain’s GDP (Henley,
2017)(refer to Appendix A). It is a major business hub within Spain and
generates its majority of revenue through foreign investments, trade firms and
banking corporation. As the crisis escalates the investors are losing their
trust and have become uncertain due to the movement and political turmoil. On 6
October 2017, Banco de Sabadell, the second largest bank in Catalonia moved its
legal headquarter from Barcelona to Madrid (Khan, 2017). Due to the withdrawal
of large corporations such as banks and trading firms from Catalonia, the
unemployment rate will increase at a higher percentage. This will lead to the
fall of GDP by one-fifth, resulting in lower GDP per capita (Bosch, 2017).
Furthermore, Catalonia secessionist claim that Catalan pay majority of their
revenue in tax to the central government of Spain but does not receive from the
central government for government spending, security and infrastructures. JP
Morgan’s research report on Catalonia crisis uses 2005 allocations of
government spending done by Spain for its regions (2012). In total Spain spent
€133 billion dollars and equally shared the amount allocated to the regions
based on the proportion (White, 2012). Catalonia received €21.5 billion by the
central government for social services, infrastructure and security (White and
Aguree, 2012) (refer to Appendix E). According to the Luis de Guindos, Minister
of economy, the necessary amount that Catalonia will have to invest for its
public will be equivalent to 5.8 % of Catalan’s GDP (2017). Furthermore,
expenses for border security, infrastructure, government spending, education
and economic development will not be sufficient leading to increase tax rates,
inflation and low standards of living for Catalonian. As Spain will no longer
be liable to help Catalonia for financial assistance. Similar to Spain, EU is
no longer liable to help Catalonia as it is not a member of EU, European
central bank (ECB) or Stability mechanism (ESM). With its increasing
unemployment rate, business relocating their headquarters to other regions of
Spain and decrease in disposable income, it can be foreshadowed that Catalonia
will face difficulties attracting foreign investments (Petroff and Riley,
2017). This further complicates as Catalonia will not be able to use euro as
their currency. There are nation that use euro as their currency but are not
members of European Union, this is possible due to a monetary agreement between
the nations and EU (European Commission, 2017). Catalonia and European Union do
not have such formal agreement that allows Catalonia to use euro as their
currency. The uncertainty that surrounds Catalonia after its succession with
decrease GDP, rising unemployment rate, inflation and low standards of living
for its citizen are factors that provide evidence as to why Catalonia should
remain part of the Spain (Economist, 2017).


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