December 15, 2017 / 11:49 AM / in 2 months

Catalan uncertainty is denting economy, Spain's central bank says

MADRID (Reuters) - Political uncertainty in Catalonia has dented expectations for growth in Spain’s economy, the country’s central bank said on Friday, as voters in the region gear up for an election that pro-independence parties have an even chance of winning.

The economy will grow by 2.4 percent next year and 2.1 percent in 2019, the central bank forecast on Friday, marginally down from previous estimates of 2.5 percent and 2.2 percent.

Central authorities have governed the northeastern region from Madrid since the end of October, when its parliament unilaterally declared independence following an illegal referendum.

The Catalan political backdrop had become an additional factor in economic projections for the next few years, the Bank of Spain said, adding that any negative effect was partially offset by improved expectations of growth in external markets, especially within the euro zone.

It also said that its central scenario was that “the level of uncertainty registered over the last few months will abate during the first part of 2018.”

The region’s independence movement has had its wings clipped by the Spanish courts and lost some political momentum after its leaders failed to agree a joint platform for contesting the Dec. 21 regional election.

But surveys show the pro-independence parties running neck-and-neck with unionists, meaning a re-launch of the secessionist push cannot be ruled out.

The central bank also expects Spain’s high rate of employment creation of the past few years to slow as the economy decelerates, though the jobless rate should still drop to 11 percent by the end of 2020 from 16.4 percent in the third quarter.

Inflation would be 2 percent this year, but would then hold below the European Central Bank’s target of just under 2 percent through until 2020, it said.

Medium-term external risks to growth included the high valuation of certain financial assets, China’s ability to adjust economic imbalances and the consequences associated with Britain’s divorce from the European Union.

Reporting by Paul Day; editing by John Stonestreet

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