A general election with no clear majority

On 23 July 2023 a general election was held. The PP won the most votes, but neither the right-wing bloc nor the left-wing bloc reached an absolute majority, which opened months of negotiation. The result left an unusually open scenario, with several possible combinations.

For the economic world, what matters about an election without clear majorities is less who finally governs than how long it takes to find out and the effect of that wait on decisions. While there is no government with full capacity to act, certain reforms, budgets and measures remain in suspense. That election night made it clear that forming a government would not be immediate, and that markets and companies would have to adapt to a period of uncertainty whose length no one could predict precisely.

The result

Without a clear absolute majority in either bloc, forming a government depended on pacts between groups, and that prolonged political uncertainty.

In a parliamentary system, an investiture requires gathering enough support in Congress. When no bloc adds up by itself, smaller groups come into play whose positions can decide the outcome, and timetables lengthen. It is a legitimate process, though slower and less predictable than when a party has a clear majority. Each possible scenario had different implications for economic policy, so those who depended on public decisions, such as aid, concessions or contracts with the authorities, followed the negotiations closely.

Prolonged uncertainty

Political uncertainty lasted until November. During that time, the government was a caretaker, which limits its capacity to drive new rules. Without a fully operational executive, bills do not move forward and economic policy decisions are put on hold.

A caretaker government can manage ordinary matters and ensure the continuity of services, but it is not meant to undertake changes of substance. That means the regulatory developments expected for the second half of the year would have to wait, with the resulting uncertainty for those who had begun preparing to adapt. Constitutional deadlines set the maximum timetable, but not the actual pace of the negotiations, which depends on the willingness of the groups and the difficulty of reconciling positions. That is why an exact forecast is impossible. For companies, the consequence is that during that time they cannot count on significant regulatory developments, nor on extensions of temporary measures that depend on a new decree, which obliges them to plan with what exists.

What was put on hold

In the meantime, budgets remained rolled over and many reforms were on hold. A rolled-over budget keeps the previous year’s allocations, without the adjustments that would have been planned. For companies, that means planning without knowing for certain which aid, deductions or tax changes would apply the following year.

It is reasonable to keep activity normal, avoid decisions that depend on pending reforms and review the options with the adviser once there is clarity. It also helps to define in advance which indicators or specific events would change a plan, so that when the information arrives the decision can be taken quickly and with judgement. In practice, this suggests documenting planning assumptions, that is, what is taken for granted about taxes, aid and regulation, so as to review them quickly when the political picture clears. It is also a good moment to strengthen what does depend on the company: cost efficiency, diversification of customers and the strength of cash, which are useful regardless of who governs.

Political uncertainty does not go away by itself, but it can be managed with plans that do not depend on a single scenario.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.