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If it ain't broke? Spain's economy takes rare election back seat

By Belén Carreño and Ingrid Melander
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FILE PHOTO: Workers assemble vehicles on the assembly line of the SEAT car factory in Martorell

FILE PHOTO: Workers assemble vehicles on the assembly line of the SEAT car factory in Martorell, near Barcelona, Spain, October 31, 2018. REUTERS/Albert Gea/File Photo

By Belén Carreño and Ingrid Melander

MADRID (Reuters) - For the first time in a decade, Spain's economy is taking a back seat in an election campaign as the main contenders, switching tack with a growth run entering its sixth year, focus on winning voters' hearts rather than filling their wallets.

That suggests whichever parties take office after the April 28 ballot are unlikely to shake up economic policy - a source of worry for some analysts and business leaders who believe unconcern could lapse into complacency.

Voters say unemployment, still hovering around 14 percent, remains a major problem, and the pension system and labour market are overdue for structural reform.

However, the jobless rate has nearly halved from its 2013 peak, and growth in the euro zone's fourth largest economy has consistently outpaced the bloc's average since shortly after it exited recession in the same year.

That has encouraged the main candidates in Spain's most open election in decades not to dwell on the need for further reform.

Instead, they are focusing on a range of often emotive social issues, including Catalonia's independence drive, women's rights, Francisco Franco's legacy and the depopulation of small villages.

Part of that shift is also down to the rapid emergence of a populist party Vox which, barring a single deputy some 40 years ago, looks certain to become the first far-right party to sit in the lower house of parliament since Franco's dictatorship ended in 1975.

Vox leader Santiago Abascal, far from focusing on the economy during campaigning, has criticised former conservative prime minister Mariano Rajoy - who built his reputation dragging Spain out of recession - for doing so at the expense of other issues.

"He forgot that it was the nation that was truly at risk," Abascal told Antena 3 TV last week, in a nod to the political crisis that erupted in Catalonia in 2017, when Rajoy imposed direct rule on the province after it unilaterally declared independence.

While that crisis rumbles on, the IMF expects the Spanish economy to grow 2.1 percent this year, well above its 1.3 percent euro zone forecast, boosted by domestic demand, public spending and ultra-low interest rates.

In a poll by the state-run Centre for Sociological Studies (CIS), voters cited unemployment as their main concern, but this is not reflected in the public debate.

One reason, said Federico Steinberg, economist at Madrid's Universidad Autonoma, is that many of those out of work tend not to vote, and candidates want to avoid worrying those in jobs by talking about deep and possibly painful structural reforms.

"No party wants to talk about the fact that the reforms they are going to make would generate losers," he said.


JOBS MISMATCH

Some say this approach is shoring up problems for later.

"After the elections, we need to flee from short-term measures and promote a reformist agenda with a long-term vision, inclusive growth and social cohesion," Santander chairman Ana Botin told shareholders on Friday.

Economy Minister Nadia Calvino sees one priority as tackling a mismatch between jobs and the skills the unemployed can offer, she told Reuters in an interview last month.

For now, however, what little economic content has appeared on campaign platforms has generally sent two simpler messages - changing the tax base and safeguarding pensions.

Because one in four voters is a retiree, all parties have tried to bill themselves as the main defender of the pension system. But while the right has said it wants to cut taxes sharply, the left aims to increase public spending across the board.

None have explained in detail how their proposals would impact the public deficit, which Spain has given a priority to narrowing in recent years.

According to calculations by Ignacio Conde-Ruiz, analyst at the Fedea economic think-tank, they would all widen the budget gap.

Out on a limb, Vox has dismissed Spain's pension system as a pyramid scheme, and proposed creating a new system from scratch.

But with Vox's chances of playing a major role in government limited, analysts doubt the next administration will produce any economic big bangs.

Goldman Sachs believes all possible coalition governments after April 28 would be committed to the European project and a competitive market economy.

"As such, changes to economic policies are likely to be more incremental than transformational... A limited further reform agenda implies some risks of complacency," its analysts wrote in a note.


(Reporting by Belen Carreno; Writing by Ingrid Melander; Additional reporting by Jesus Aguado; Editing by Mark Bendeich and John Stonestreet)