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Spain trims economic growth outlook with trade row in mind

MADRID (Reuters) - Spain’s acting government has lowered its growth forecasts due to domestic and external factors such as trade tensions and raised its deficit estimate, just as political gridlock narrows Madrid’s room for manoeuvre on budgetary matters.

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In a document that is part of draft budget plans submitted to the European Commission on Tuesday, the government said it expects economic output to expand by 2.1% this year, less than a previous forecast of 2.2%. It sees growth of 1.8% next year, below a previous forecast of 1.9%.

Spain has mostly had caretaker or minority governments for years, meaning the budget has often been simply rolled over from one year to the next.

Spaniards will vote on Nov. 10 in the country’s fourth parliamentary election in four years. A caretaker government has been in place since an inconclusive poll in April.

Spain left the budget deficit forecast unchanged from its target of 2% of gross domestic product this year, but raised it to 1.7% of GDP from a previous 1.1% for 2020.

This takes into account the fact that new taxes, including on global technology companies, that were planned earlier this year could not be adopted in parliament.

The Budget Ministry said the forecast for 2020 could be revised if and when Spain is able to form a government and pass a budget in parliament.

Later on Tuesday, the International Monetary Fund also cut Spain’s economic growth forecast by 0.1 percentage points apiece in 2019 and 2020, to 2.2% and 1.8% respectively, as part of its updated World Economic Outlook.

The euro zone’s fourth largest economy has consistently outperformed much of Europe since it emerged from a five-year slump in 2013, and the 2019 forecast still points to a growth well above the projected 1.1% growth rate for the currency bloc.

The ministry said in the document that Spanish growth would moderate from previous years, citing “an increasingly uncertain international context marked by the slowdown in economic activity and the persistence of commercial and geopolitical tensions that affect international trade and investment”.

The Budget Ministry said the cut in the growth forecast was also due to a change in the methodology Spain uses to calculate GDP.

The figures sent to Brussels include a 0.9% raise in state pensions and a 2% in public workers’ salaries, but otherwise largely keep to the budget approved in 2018 by the previous conservative government of Mariano Rajoy.

In a recent TV interview, acting Prime Minister Pedro Sanchez said that, if elected next month, he aimed to get a budget approved by parliament in the first quarter of 2020.

On Tuesday, Economy Minister Nadia Calvino told RNE radio she could not rule out a global economic crisis but that “the probability right now (is) not very high, nobody sees Europe entering into recession in the short term, and less so Spain”.

On Monday, European Central Bank Vice-President Luis de Guindos also ruled out a recession in Europe but foresaw the bloc experiencing lower economic growth for a longer period.

The government’s downward revisions come after the Bank of Spain said in September that the Spanish economy was likely to grow much more slowly than expected this year due to weaker investment and private consumption and a slowdown in Europe.

Additional reporting by Emma Pinedo; Writing by Jesús Aguado; Editing by Catherine Evans