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Week Ahead (24 July)


W/C Monday, 24 July – Coalition talks to begin in Spain, following narrow electoral victory of the conservative Popular Party (PP)

On Sunday, Spain held parliamentary elections for the first time since November 2019, to decide the deputies for the 350 seats of the Congress of Deputies. In May, Prime Minister Sánchez surprisingly decided to call snap elections after his party suffered a major setback losing control of several regions and cities, while the conservative Popular Party (PP) emerged victorious in key cities, including Madrid.

Centre-right Popular Party (PP) secured the most seats (136), confirming its advantage in the polls. Meanwhile, Prime Minister Pedro Sanchez's Socialist Workers' Party (PSOE) won 122 seats, slightly overperforming expectations. PP capitalised on its new leader’s popularity and the inevitable political cost of the Socialist-led coalition due to the effects of a coronavirus pandemic and an ongoing energy and cost-of-living crisis fuelled by the war in Ukraine. However, it fell short of securing a majority. Additionally, it is now unlikely for the PP to form a right-wing coalition with the populist far-right Vox party, after the latter lost 19 seats compared to the previous elections, winning only 33 seats, indicating that a significant portion of voters was opposed to a far-right party entering the government. Vox was followed by the recently founded left-wing Sumar, led by the current Minister of Labour, Yolanda Díaz, which managed to win 31 seats.

Despite finishing second, Sanchez's PSOE and its allied parties celebrated the election outcome as a victory since their combined seats amounted to slightly more than those of the PP and Vox. However, even with the combined seats, the left-leaning bloc still lacks the necessary majority to form a government independently. Sanchez's ability to stay in power hinges significantly on securing the support of regional parties, particularly Catalan separatist parties such as Junts and ERC. These parties played a crucial role in enabling the current government by abstaining in the past. However, in the recent election, the pro-independence bloc in Catalonia suffered significant losses, making it uncertain whether they would be willing to support a new minority government led by Sanchez. As a result, the situation remains fluid, and various scenarios are possible, including another minority government led by Sanchez, a new election, or a grand coalition between PP and the Socialists.

Negotiations to form a government are expected to begin after the new parliament convenes on 17 August, and it remains to be seen which parties will be able to forge alliances and build a viable governing coalition. In the absence of an agreed coalition in the coming weeks, the country will likely hold another snap election, with Sánchez remaining the Prime Minister of a caretaker government.


Thursday, 27 July – ECB Governing Council to hold monetary policy meeting in Frankfurt

On Thursday, the ECB Governing Council (GC) meets to decide the next steps for Eurozone interest rates.

The meeting comes a week after Eurostat released its June flash inflation estimate, showing inflation dropped to 5.5% from 6.1% in May, the lowest level since Russia invaded Ukraine, and after peaking at 10.6% in October 2022. This is the lowest euro-area year-over-year inflate rate since the beginning of 2022, however, rates are still higher than expected, making further interest hikes an increasingly likely prospect. Furthermore, an acceleration in services inflation offset the decrease in overall inflation, with core CPI rising to 5.4%.

Last month, following Christine Lagarde’s speech in Hanover, where she warned that inflation remained “too high” the ECB announced it was increasing its interest rates by 25-basis points to 3.5% during its June meeting, its eighth consecutive rate hike. The minutes of the June ECB monetary policy meeting showed continuous disagreement among Governing Council (GC) members, with differences emerging regarding the importance of inflation projections versus current inflation readings, with some policymakers initially pushing for a 50-basis points hike.

The past year has seen an unprecedented 400 basis point increase in rates, making it the fastest tightening pace in ECB history. The ECB will need to continue to walk a tightrope, balancing between the need for further rate hikes to curb core inflation, without increasing the risk of recession. A 25-basis points hike is possible at the 27 July meeting but by no means a foregone conclusion.


Friday, 28 July - CSO to release data on consumer prices in Ireland

The Central Statistics Office will release its flash estimate for July’s consumer prices on Friday.

June’s Consumer Price Index data release revealed that prices had declined slightly to 6.1% in comparison to the previous month of 6.6% in May. This is the lowest inflation rate since February 2022 and a significant decline from Ireland’s peak inflation of 9.2% in October 2022.

However, June’s inflation rate was the 21st straight month where the annual increase in the CPI has been at least 5.0%. The sectors with the largest increases in the 12 months to June include Housing, Water, Electricity, Gas & Other Fuels (up by +15.7%), along with Recreation & Culture (up by +10.4%).

It is expected the release of this month's inflation rate should reveal a continuing trend of declining consumer price inflation.

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