Catalonia could pose future “risk” to Spanish economy

Spain’s GDP is “still expected to increase by a robust 3.1% in 2017,” according to a report by the European Commission, amid warnings that the situation in Catalonia could be a “risk” in the future. Although the economy continues to grow, it is growing at a slower rate compared to 2016.

“Market reactions to recent events in Catalonia have remained contained,” the European Commission’s report stated in the section entitled ‘Risk to the outlook.’ The ongoing dispute to Catalonia and Spain may have a negative effect in the future, however.

“The risk exists that future developments could have an impact on growth, the size of which cannot be anticipated at this stage,” it also noted.

Spain’s GDP growth rate estimate for 2017 is 0.3% higher than expected in the last Comission's outlook, with Spanish economy expected to grow for 2018 by up to 2.5%, andy by 2.1% in 2019.

“The general government deficit and debt ratios are forecast to continue declining", added the report, with deficit expected at 3.1% this year, 2.4% next year and 1.7% in 2019. Debt will peak at 98.4% this year, before decreasing to 96.9% next year and 95.5% by 2019.

The unemployment situation is even expected to improve with a decrease from 17.4% in 2017, to 15.6% in 2018. This trend is thought to continue into 2019, with unemployment dropping to 14.3%.

The Spanish government downgraded its own prediction in October, blaming the slower pace of growth on the situation in Catalonia. It ensured that “the elimination of uncertainty” would increase growth.

The Spanish economy is growing at twice the speed of the average Euro Zone rate, partly thanks to help from the European Central Bank, and a banking bailout of over 40 billion euros.

Aside from Catalonia, the standard present risks to the Spanish economy also remained. High debt and deficit levels, the uncertainty over the 2018 budget as well as a high percentage of unemployment, were noted in the report, despite the fact that the overall forecast was optimistic. “Strong, balanced growth is set to continue,” the report said.