November 9, 2017 / 1:06 PM / a month ago

Rajoy downbeat, EU upbeat on Spanish economy

MADRID (Reuters) - Events in Catalonia are having a worrying impact on Spanish growth, Prime Minister Mariano Rajoy said on Thursday, minutes after the European Commission issued a broadly upbeat view of the euro zone’s fourth largest economy.

The government trimmed its GDP forecast for 2018 to 2.3 percent from 2.6 percent last month due to concerns about economic fallout from the country’s worst political crisis in four decades.

“It is affecting tourism, it is affecting some entities and it is affecting trade. We have seen some worrying figures,” Rajoy told reporters in the city of Salamanca.

That could lead to lower growth, he added, referring to last month’s cut in the forecast.

But in a regular outlook for European states issued in Brussels on Thursday, the EU executive edged up its 2018 projection for Spain by a tenth of a percentage point to 2.5 percent.

While acknowledging the risk of fallout from the crisis, the Commission also raised its 2017 view to 3.1 percent -- in line with that of Rajoy’s government -- from 2.8 percent.

A Catalan separatist flag is raised as a group of Catalonian mayors gather outside the EU Commission headquarters in Brussels, Belgium November 7, 2017. REUTERS/Pascal Rossignol

Speaking in Madrid, Spanish Economy Minister Luis de Guindos said that if the situation in Catalonia improved in coming weeks, the government might edge its 2018 forecast up again.

Catalonia’s secessionist push has led to an exodus of businesses from the region and hit Spanish assets.

The Commission said market reactions to events in the region had remained contained.

“The risk exists that future developments could have an impact on growth, the size of which cannot be anticipated at this stage,” it said. However, growth could benefit from “a stronger than expected contribution from net exports.”

The Commission said it expected Spain would cut its budget gap this year and next, narrowing it to 2.4 percent of GDP next to drop well below a limit of 3.0 percent set by European Union finance ministers.

The economy’s Achilles’ heel -- unemployment -- would plummet to 14 percent by 2019 from a peak of close to 26 percent in 2013, it said.

Reporting by Tomas Cobos and Carlos Ruano,; Writing by John Stonestreet; editing by Jesus Aguado

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