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Bank of Spain cuts GDP forecasts for 2018, 2019 on Catalonia

[MADRID] 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 per cent next year from a previous estimate of 2.5 per cent in September before the secession crisis erupted. The economy will grow 2.1 per cent in 2019 from a previous projection of 2.2 per cent, the Bank of Spain said in updated economy estimates published on its website. The central bank estimated 2017 growth at 3.1 per cent, 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.

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

Unemployment will keep falling to about 11 per cent at the end of 2020. The government of Mr 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.

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