Bank of Spain Cuts Economic Growth Forecasts Through 2021

(Bloomberg) --

Spain’s central bank cut its economic growth forecasts, an acknowledgment that even one of the euro region’s fastest growing economies isn’t immune to the uncertainty that’s gripped the global economy.

The Bank of Spain now expects expansion of 2% this year, with a further slowdown to 1.7% in 2020. That compares with June projections for 2.4% and 1.9%.

The bad news comes just days after Spain’s credit rating was upgraded by S&P. That helped spurred a rally in the country’s bonds, pushing 10-year yields down to just 0.13%. They were around 1.5% at the start of the year.

The central bank blamed the forecast cuts on weaker-than-expected job growth across most sectors and heightened global uncertainty stemming from Brexit negotiations and trade tensions, which has hit investment. Bank of Spain research head Oscar Arce also said it also reflected recent revisions to past economic data.

Despite the lowered expectations, Spain’s growth is still set to outpace other major euro-area economies. A manufacturing slump has put Germany on the brink of recession and Italy’s economy has stagnated.

While Spain is in its sixth year of solid expansion, the new numbers underscore the concern among economists and Spanish voters that the period could be coming to an end. That means lawmakers are running out of opportunities to seize on the good times and implement major policy changes that could boost long-term prospects.

Months of political paralysis and years of weak minority governments have fed those concerns, and another general election is due to take place in November. Such uncertainty, Arce said, “doesn’t help economic growth.”

Spain’s unemployment rate has declined to 14%, but further progress could be slow. Economists don’t think it’s likely to fall much further in the coming years because of deep-seated structural problems such as an over-reliance on short-term contracts.

The Bank of Spain sees the rate slipping to around 13% by the end of 2021.

To contact the reporter on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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