Bank of Spain Cuts GDP Forecasts for 2018, 2019 on Catalonia

(Bloomberg) -- The Bank of Spain cut its estimate for economic growth for 2018 and 2019 because of the impact of political uncertainty related to Catalonia’s drive for independence.

Growth is set to slow to 2.4 percent next year from a previous estimate of 2.5 percent in September before the secession crisis erupted. The economy will grow 2.1 percent in 2019 from a previous projection of 2.2 percent, the Bank of Spain said in updated economy estimates published on its website. The central bank estimated 2017 growth at 3.1 percent, matching a Bloomberg survey.

The latest update on the Spanish economy comes as voters in the wealthy region of Catalonia prepare to go to the polls on Dec. 21 in an election called by Prime Minister Mariano Rajoy after its former government illegally declared independence. The downgrade in growth estimates for the next two years reflects uncertainty relating to Catalonia and the recent increase in oil prices, the Bank of Spain said.

While thousands of companies shifted their registered address away from Catalonia and tourism figures dropped, Rajoy’s government is betting that the election will help restore stability after it took direct control of the region’s administration in October. The latest polls show pro-independence parties may be at risk of losing their majority in the 135-seat regional assembly.

The Bank of Spain increased its inflation estimate for 2018 to 1.5 percent from 1.3 percent. The central bank sees inflation easing to 1.4 percent in 2019 compared to a previous estimate of 1.6 percent.

Unemployment will keep falling to about 11 percent at the end of 2020. The government of Rajoy is aiming to fuel job creation to a pre-crisis total of 20 million Spaniards at work by 2020, coinciding with a general election that may take place that year.

--With assistance from Harumi Ichikura and Zoe Schneeweiss

To contact the reporter on this story: Maria Tadeo in Madrid at mtadeo@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Penty, Kevin Costelloe

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