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Spain Contained Impact of Catalan Crisis to Extend Recovery

Updated on
  • Economy expanded 0.7% in fourth quarter, tops 3% for 2017
  • Catalan parliament convenes to elect next regional leader

The Spanish economy shrugged off the political crisis in Catalonia late last year, extending its solid growth momentum into the fourth quarter.

Output expanded 0.7 percent in the three months through December, encompassing a period of instability that kicked off on Oct. 1 following an illegal referendum on independence in Catalonia. That matched the median estimate in a Bloomberg survey.

From a year ago, the economy grew 3.1 percent, the National Statistics Institute said on Tuesday, adding to a four-year recovery that has seen the nation go from problem child to the vanguard of growth in the euro zone. In 2017, the expansion came in above 3 percent for a third year.

The figures provide some relief after the Catalan crisis appeared to cloud the outlook for the country. The central government in Madrid invoked unprecedented constitutional powers to take control of the region and called a snap election, a move that backfired when separatists managed to keep their parliamentary majority in a vote in December.

“It’s only natural at this point of the cycle to see a slowdown, ” said Angel Talavera, lead economist at Oxford Economics in London. “We’re not going to see an abrupt deceleration this year, but growth could certainly plateau.”

The strength in Spain’s economy is being mirrored across much of the euro area, where data on Tuesday is forecast to show the economy had its best year in a decade in 2017. In France, GDP rose 0.6 percent in the fourth quarter, wrapping its strongest year since 2011. European Central Bank President Mario Draghi said last week that the currency zone is experiencing “continued strong and broad-based growth momentum.”

The Spanish economy is expected to cool this year, with expansion predicted to come in at 2.6 percent. While Prime Minister Mariano Rajoy is yet to find a solution to the Catalan standoff, his administration has become less pessimistic on the outlook. It now predicts growth above 2.5 percent, having cut its forecast in October to 2.3 percent.

What Our Economists Say:

“Looking forward, Spain has the potential to keep expanding at a decent pace. That’s because the economy has further slack to absorb before reaching its full capacity.”

--Maxime Sbaihi and Jamie Murray, Bloomberg Economics

For more, see our Spain React

The Catalan parliament is set to convene later Tuesday to elect its next president, with all eyes on ousted leader Carles Puigdemont who is seeking a second term in office from his self-imposed exile in Brussels. The nation’s top court ruled on Saturday he won’t be able to be voted in unless he’s present before the Catalan parliament, leaving him few options.

Counting on their majority, the Catalan house speaker could still propose an alternative candidate to Puigdemont or risk new regional elections if no government is formed.

— With assistance by Ainhoa Goyeneche, and Harumi Ichikura

(Updates with economist comment from fifth paragraph.)
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