Spain's ruling Socialist Party suffered its worst-ever electoral result in Andalusia on Sunday, deepening the political and fiscal problems facing Prime Minister Pedro Sanchez ahead of a general election next year.

The Socialist Workers' Party (PSOE) held onto 28 seats in the regional parliament, losing two in what was once its historic stronghold. The conservative People's Party (PP) won 53 of 109 seats. It maintained its hold on the region but fell short of the 55 needed for an outright majority.

The far-right Vox party took 15 seats, making it the kingmaker in any coalition negotiation. Now, Juanma Moreno, president of the Andalusian branch of the People's Party, will need to form a coalition with Vox to form a government in Spain's most populous region.

"Andalusians have given us a clear mandate to continue the transformation of Andalusia," Moreno said.

Andalusia is Spain's third-largest regional economy at around €200 billion, or 13.4% of national gross domestic product. Its economy is larger than that of ten EU member states, including Slovakia, Bulgaria, and Croatia.

Spain's IBEX 35 gained 0.75% on Monday in the wake of Andalusia's regional election results. Repsol S.A. (REPYY) and Cellnex Telecom S.A. (CLLNY) both traded higher as Spanish equities reacted to the conservatives' victory in the regional vote.

Far Right Makes Gains Across Europe

The election results in Andalusia reflect a broader pattern reshaping European politics. Right-leaning and far-right parties have made electoral gains with voter anger over mass immigration, sluggish economic growth, and persistent unemployment.

In the United Kingdom, Reform UK dominated local elections on May 7, gaining 1,372 seats, compared with steep losses for the Labour Party. In Germany, the Alternative for Germany came second in Bavaria's local elections and doubled its vote share in the Rhineland-Palatinate state election in March.

The People's Party and Vox campaigned hard against Sanchez's decision to grant legal status to more than 500,000 undocumented migrants. Vox leadership denounced the policy as "Islamization" and a "migratory invasion" of Spanish society.

"We have a historic opportunity in Andalusia," Manuel Gavira, Vox politician and member of the Parliament of Andalusia, said. "Faced with those who are impoverishing us and replacing native-born citizens with foreigners, there is no room for half measures; we cannot stand idly by."

Andalusia Is Spain's Poorest Region

Despite outperforming Spain's national GDP growth average in 2024 and the first three quarters of 2025, Andalusia remains the country's poorest autonomous region.

Andalusian unemployment stood at 16.1% in the first quarter of 2025, the second highest in the country. It is well above the national average, with youth unemployment at 34.4%. The region has the highest at-risk-of-poverty rate in Spain at 30.5%.

With joblessness as a persistent concern, PP and Vox campaigned on strict immigration policies. They pushed back against Sanchez's amnesty for half a million illegal immigrants. Vox has called for a "national priority" policy that gives Spaniards access to public services and benefits before foreigners.

The left-wing Adelante Andalucía party also made gains, increasing its representation from two to eight seats. "We have taken the absolute majority away from the PP," its leader, José Ignacio García, said.

The Socialists ruled Andalusia for over four decades until 2019. Then, voters ended their dominance in response to persistent unemployment, neglected public services, and entrenched political complacency.

PP Leads in National Polls

The PP has led in the national polls for more than a year now, amid corruption scandals involving former socialist officials and even Sanchez's wife. She has been charged in a legal case brought against her by a far-right group, which she denies.

The prime minister's party is mired in corruption allegations. Junts, the Catalan pro-independence party whose parliamentary support was essential to the prime minister's minority government, withdrew its backing in October 2025. This left the administration governing with no stable majority.

The country's economy also has headwinds. In the first quarter of 2026, Spain led the eurozone's major economies with quarterly growth of 0.6%, while France stalled and Germany expanded just 0.3%. On an annual basis, Spain grew 2.7% year-on-year, outpacing both.

Yet the economic strength is offset by Spain's unemployment rate and fiscal issues, which have compounded Sanchez's political problems. Unemployment climbed to 10.83% in the first quarter of 2026, up from 9.93% in the previous period.

The International Monetary Fund (IMF) warned in March that the country's political divide could undermine fiscal policy. The government has failed to pass a national budget for a second consecutive year.

"Political fragmentation raises questions regarding the government's ability to deliver the sizable fiscal consolidation measures that will be needed to meet its medium-term fiscal structural plan commitments," the IMF said. Spain needs to "implement decisive action to reassure markets in the event of financial stress," it said.

Tensions With U.S.

The region's export base adds a further layer of external risk. In March, President Donald Trump threatened to halt U.S. trade with Spain after Sanchez refused to allow U.S. forces to use jointly operated military bases at Rota and Morón, both located in Andalusia, in connection with strikes on Iran.

Spain subsequently closed its airspace to U.S. planes involved in the conflict, further straining the bilateral relationship.

"Spain had been terrible," Trump told reporters. "We're going to cut off all trade. We don't want anything to do with Spain." Sanchez responded defiantly, saying Spain would not be complicit in something harmful to the world simply out of fear of retaliation.

The U.S. was Andalusia's fifth-largest goods export partner in 2024 at €3.1 billion. The region accounts for 58.9% of all Spanish oil exports and 32.7% of national fruit and pulse exports.

Though any U.S. trade action would face significant legal complications given that trade policy is negotiated at the EU level, the diplomatic rift has added a geopolitical dimension to an already uncertain investment environment.

"Risks are on the downside, including from a lengthy Middle East conflict, an escalation of other geopolitical tensions and trade measures, and domestic political fragmentation," the IMF said.