Bank of Spain warns about impact of political uncertainty on the economy

The Spanish economy is slowing down. At least, that is the latest forecast from the Bank of Spain, which does not believe the government’s assertion that gross domestic product (GDP) will continue to grow at a pace of around 3% this year and the next.

“In Spain, the information available is consistent with a gradual, moderate slowdown in activity from the high pace of expansion sustained throughout 2015,” reads the central bank’s quarterly economic report, released on Friday.

The report authors also note that even though their downward revision to 2.7% is moderate, “the balance of risks surrounding this baseline scenario has worsened considerably in recent months.”

Doubts over the future course of economic policies may have a negative bearing on private agents’ spending decisions

Bank of Spain quarterly report

Chief among these risks is political uncertainty, said the central lender. This concern mirrors misgivings by the European Commission regarding the stalemate in Spain, which is yet to name a new prime minister following inconclusive elections in December.

“Doubts over the future course of economic policies may have a negative bearing on private agents’ spending decisions, especially if the current situation of uncertainty extends over time,” says the report, which is part of the Bank of Spain’s Economic Bulletin.

The report also makes a note of geopolitical and financial market tensions at the international level, which could have an impact on Spain’s economy.

In line with Brussels, the Bank of Spain is recommending that the country do more to balance its accounts and contain spending.

“These developments highlight the need for economic policies to give priority both to seeing through fiscal consolidation, which is essential for maintaining confidence, and to persevering with the application of structural reforms that reduce the vulnerabilities of the Spanish economy and enable its future growth capacity to be enhanced.”

If confirmed, the expected slowdown in economic growth will represent an added difficulty in the quest to reduce Spain’s public deficit from 5.2% of GDP in 2015.

English version by Susana Urra.