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Financials

UPDATE 1-Spanish economy to gradually slow down through 2022 as consumer demand wanes

(Adds details and quotes from Bank of Spain director general)

* Economy seen expanding 0.4% in Q4, same as in Q3

* Keeps economic outlook unchanged for 2019-21

* Bank of Spain sees Spain’s GDP growing 1.5% in 2022

* Sees 2019 deficit at 2.5% before falling to 1.4% in 2022

MADRID, Dec 16 (Reuters) - Spain’s economic growth is likely to gradually slow down between 2019 and 2022 due to lower consumption and weaker business investment, the central bank said on Monday.

In its economic outlook for 2019-2022, the central bank expected GDP to grow 1.7% next year and 1.6% in 2021 - unchanged from its previous forecasts.

It said that in the fourth quarter, the economy should expand at a pace of around 0.4%, in line with the third quarter.

Spain’s economy - the euro zone’s fourth largest - has consistently outperformed much of Europe since it emerged from a five-year slump in 2013, and the 2019 forecast of 2% growth still points to a growth well above the projected 1.2% growth rate for the currency bloc.

But the Bank of Spain warned: “It is expected that, along the projection horizon, GDP growth will continue to show, as has been the case since mid-2017, a gradual slowdown path,” it said.

“This slowdown ... is due to smaller contributions by external and domestic demand alike to output growth.

“Despite the relative strength of domestic demand, this variable is expected to lose momentum in the coming years,” it said, also pointing to “a projected sharper increase in imports than in that of exports”.

The projections, which are part of the forecasts submitted by euro zone countries to the European Central Bank last Thursday, also included an initial growth projection of 1.5% for the Spanish economy in 2022, when it also expected unemployment to slip to around 12.5% compared to this year’s projected 14.3%.

Bank of Spain director general Oscar Arce also said that domestic political uncertainty regarding new economic policies persisted, given the lack of a government after an inconclusive election in November - Spain’s second this year.

The bank increased its budget deficit forecasts to 2.5% of gross domestic product this year from 2.4% previously and forecast a 1.4% deficit in 2022.

It also expected the EU-harmonised inflation rate to gradually increase to 1.6% in 2022 from 0.8% in 2019. (Reporting by Jesus Aguado; Editing by Jose Elías Rodriguez, Andrei Khalip and Alison Williams)

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