Five questions on Spain’s snap election
7 OCT, 2026
By Martin Wolburg from Generali Investments
Five key questions on Spain's early general election and its implications for markets and the economy.
1. At this point, is the call for early elections a positive or negative development for Spain?
On balance, it is moderately positive. The current Parliament had practically ceased to function. The Government had not passed a new budget since 2023 and had to negotiate legislation vote by vote. Bringing the elections forward by a few months from summer 2027 comes at little cost and offers an opportunity to end the institutional deadlock.
Markets reacted calmly. However, a certain political risk premium had already been priced in. The spread between the Spanish 10-year bond and the German Bund widened by around 16 basis points last week to roughly 65 basis points, close to its highest level in the past twelve months.
2. Could the elections help resolve uncertainty in Spain, given that the Government has failed to pass a budget in recent years or push through key legislation, including the housing measures rejected last week?
The elections could help, but only if voters deliver a clear majority. Current polls suggest that PP and Vox would secure a comfortable majority above the 176 seats required. A majority government could pass the first new General State Budget since 2023.
However, recent experience shows that fragmented parliaments generate political uncertainty and slow fiscal consolidation. The main risk is renewed institutional gridlock, not expansionary pre-election measures.
Moreover, the housing problem will not be solved automatically by the vote, regardless of who wins. The two housing decrees proposed by the Sánchez Government failed because Junts sided with PP and Vox, and voters do not yet show clear confidence in any party to handle the issue.
3. Which governing coalition is more likely to emerge after 29 November – a left-wing coalition (PSOE, Podemos and others) or a right-wing coalition (PP and Vox)? Which outcome would investors be more comfortable with?
A centre-right government is clearly the base case. Poll averages put the PP at around 33%, the PSOE at about 26% and Vox close to 18%. Nevertheless, Sánchez should not be ruled out: he staged comebacks in the 2019 and 2023 elections. If the left manages to run united – particularly Sumar and Podemos – it would also win more seats, as Spain's electoral system penalises parties that split their vote.
Investors would probably be more comfortable with a PP-led government with a working majority. The main reason is that it would have greater capacity to pass budgets and implement business-friendly policies.
A PP-Vox coalition would likely mean tax cuts and tighter immigration controls, although it is unlikely to fundamentally alter Spain's economic outlook. The greater Vox's influence on policymaking, the greater the risks, especially on migration. Migration flows have made a significant contribution to Spain's economic growth since 2022.
Likewise, tax cuts without offsetting measures could slow the process of fiscal consolidation.
4. What are the two or three main challenges Spain currently faces?
Housing affordability. Average rents have practically doubled over the past decade and asking prices for homes have risen by around 90%. Housing is currently Spaniards' main concern, according to CIS surveys (37.5%).
Governability and public finances. Public debt still stood at 100.8% of GDP at the end of 2025. The deficit has remained contained partly because spending has been frozen at 2023 levels in the absence of new budgets. This is not a sustainable fiscal framework in the long term.
Sustaining growth once cyclical tailwinds fade. Tourism's contribution is starting to moderate and the unemployment rate remains the highest in the euro area. In addition, inflation above the eurozone average is gradually eroding Spain's competitiveness.
5. Is there anything else you think is worth highlighting?
The fundamentals of the Spanish economy remain solid. Spain grew by 2.8% in 2025, twice the eurozone rate, and is expected to keep outpacing the region in 2026. In addition, the three major rating agencies upgraded Spain's credit rating in 2025 and have kept it unchanged since (S&P: A+, Moody's: A3 and Fitch: A).
Politics has rarely done significant damage to the Spanish economy. Repeated elections and minority governments since 2015 have not prevented Spain from outperforming many of its European partners economically.
Points to watch: the role Vox may play in a future government, how quickly the investiture vote takes place and whether the 2027 budget is ultimately approved. S&P explicitly cites budgetary deterioration amid political fragmentation as a potential trigger for a credit rating downgrade.
The European dimension. A change of government would mean the disappearance of the last major socialist government in the European Union and of one of Donald Trump's leading critics within Europe.
