Bank of Spain cuts 2018 growth forecast on global slowdown

Fawad Maqsood December 14, 2018

MADRID: The Bank of Spain said on Friday it has cut its 2018 growth forecast slightly from the previous figure published in September due to a less favourable global economic environment, though added this was partially offset by lower oil prices.

Spain’s gross domestic product would expand by 2.5 percent in 2018, the bank said, below its previous forecast, and the government’s own target, of 2.6 percent.

Spain’s economy expanded by more than 3 percent every year since 2015, rebounding from five years of shrinking or flat output during the financial crisis, though lower exports to a slower global economy is expected to weigh.

The central bank cited uncertainty over US trade policies, a hypothetical escalation of protectionist measures worldwide, the potential fallout from Britain’s process of leaving the European Union and the debate over the Italian budget.

Domestically, parliamentary fragmentation, where no single political party holds a majority, and potential political upheaval in Catalonia were also risk factors for Spain’s economy, the bank added.

The bank reiterated that it saw the budget deficit to end this year at 2.7 percent, in line with government targets, though raised its forecast for the 2019 and 2020 deficits slightly saying it saw fiscally expansive policies next year.

“While nominal growth explains a slightly declining debt ratio, its level in 2021 continues to be excessively high,” the bank said.

Spanish debt-to-GDP ratio was 98.3 percent in the third quarter, the Bank of Spain said in a separate statement on Friday, slightly higher than a quarter earlier and above the government’s end-of-year 97.0 percent target.

Spain’s debt soared from around 38 percent in 2008 during the economic crisis as the government first tried to spend its way out of the pending recession and later faced climbing refinancing costs in the midst of the downturn.

Copyright Reuters, 2018

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