(MENAFN - Khaleej Times) The Spanish economy is likely to grow at a higher pace this year than previously expected after a solid first half, outpacing the average growth of eurozone countries thanks to strong internal demand, the Bank of Spain said on Friday.
In its economic outlook for 2019-21, the central bank forecast growth this year of 2.4 per cent, above its previous 2.2 per cent view released in March but still marking a slowdown from 2018's 2.6 per cent expansion.
It left its growth outlook for 2020 and 2021 unchanged at 1.9 per cent and 1.7 per cent respectively.
"The year has started with higher growth than expected... and signs in the second quarter point to the economy keeping up solid growth too," Oscar Arce, the Bank of Spain's director-general for economics, statistics and research, told a news briefing.
The central bank forecast that gross domestic product would expand 0.6 per cent in the second quarter from the previous three-month period when growth reached 0.7 per cent.
"It is expected that the rate of progress of the economy will continue to comfortably exceed its potential rate [1.5 per cent], which will allow it to continue to grow, allowing the still high volume of unemployment to be reabsorbed," it said.
Spain's growth outlook contrasted with that of Germany, the eurozone's largest economy. On Friday, Germany's central bank slashed its 2019 growth projection to 0.6 per cent. Spain's economy has consistently outperformed much of the European Union since it emerged from a five-year slump in 2013, though growth is expected to ease slightly this year as a weakening global economy weighs on exports.
On Thursday, the European statistics agency Eurostat confirmed its estimate that gross domestic product in the eurozone grew 0.4per cent in the first quarter.
The Bank of Spain said it expected growth to continue in the medium term thanks to better competitiveness and good financing conditions while monetary policy remains accommodative despite a gradual slowdown in economic growth.
The central bank was also more upbeat on unemployment and fiscal imbalances, two of the remaining problems facing the domestic economy.
It now sees unemployment falling to 11.8per cent at the end of 2021 from 12.1 per cent in a previous forecast.
It also reduced its budget deficit forecasts, saying it expects a fiscal gap of 2.4 per cent of GDP this year, 1.8 per cent in 2020 and 1.6 per cent in 2021. Previously it had forecast shortfalls of 2.5 per cent, 2 per cent and 1.8 per cent, respectively.
Spain's Socialist government was forced to roll over the 2018 budget to this year after its 2019 budget proposal was defeated in parliament.
Though the European Central Bank raised by 0.1 percentage point its growth forecst for 2019 to 1.2 per cent, it lowered its 2020 outlook to 1.4 per cent and its 2021 projection to 1.4 per cent citing prolonged global uncertainties.
On Friday, the Bank of Spain said risks to its forecasts include Britain potentially leaving the EU with no deal on their future relations, increasing global trade tensions and uncertainties over Italian fiscal policy.