Bank of Spain cuts outlook amid political uncertainty

The Spanish economy slowed in the first quarter and the outlook for the year was lowered, the central bank said yesterday.

The pace of growth slowed to 0.7% from 0.8% in the fourth quarter last year, the Bank of Spain said as it cut its annual growth forecast for 2016 to 2.7% from a previous estimate of 2.8%.

That compares to growth of 3.2% last year, which saw Spain’s economy accelerate at the fastest pace since 2007.

The revision comes as lawmakers in Spain struggle to form a working coalition government following an inconclusive election in December, resulting in a political deadlock that could result in fresh elections in June.

The Bank of Spain sees consumer prices falling an average of 0.1% in 2016. The projections come a day after Spain said it missed its deficit reduction target for the eighth consecutive year in 2015.

The shortfall came in at 5.2%, compared to a European Commission target of 4.2%, making it the second-highest differential in the EU after Greece, even as the recovery gained momentum.

The Bank of Spain said it sees the deficit at 4.4% in 2016 and 3.4% in 2017.

Meanwhile, unemployment, stuck above 20% since late 2010 coinciding with the height of the economic crisis, is expected to continue falling. Unemployment is seen slightly above 18% by the end of 2017.

* Bloomberg