March 20, 2018 / 12:58 PM / 3 months ago

Bank of Spain raises growth forecasts on global economy, Catalonia

MADRID (Reuters) - The Bank of Spain raised its economic forecasts for 2018-2020 on Tuesday, reflecting stronger exports as growth expectations for the global economy rise and diminishing concerns over Catalonia.

Spain’s economic output was expected to grow 2.7 percent year-on-year in 2018, up from a December forecast of 2.4 percent. Growth for 2019 was forecast at 2.3 percent and for 2020 at 2.1 percent, the central bank said.

Spain’s economy shrank during the financial crisis from 2009 to 2013 but rebounded in 2014. It has since outstripped much of the European Union with growth of more than 3 percent.

“Improved expected growth is due to a combination of factors, including better-than-expected short-term data, greater expansion of export markets and a slight fall in political uncertainty,” the bank said.

In December, the central bank cut its economic forecasts for 2018 and 2019 because of a political rift between the region of Catalonia, which is pushing for independence, and the government, which says such a move is illegal.

The bank said it expected economic expansion of 0.7 percent on a quarterly basis in the first quarter, unchanged from a quarter earlier, and inflation ending the year at 1.2 percent. The unemployment rate is forecast to fall to 11 percent in 2020 from 16.5 percent at the end of 2017, it said.

The Spanish government is expected to raise its official growth forecast of 2.3 percent it presents its 2018 budget later this month, with Prime Minister Mariano Rajoy saying it would be at least 2.5 percent.

The central bank said its forecasts might be raised if global or euro zone growth is better than expected and Spain brings its budget shortfall to within EU-agreed levels, enabling the country to relax deficit-beating budgetary measures.

However, potential fallout from rising interest rates as the European Central Bank normalises monetary policy, a rise in protectionist global trade policies or a return of political tensions in Catalonia could weigh on expectations, it said.

Reporting by Paul Day, editing by Larry King

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