Spain Growth Picked Up at Start of the Year, Central Bank Says

(Bloomberg) -- The Spanish economy probably accelerated at the start of the year, the central bank said, as the nation extends its three-year recovery with greater momentum.

Gross domestic product grew 0.8 percent in the first three months of 2017, the Bank of Spain said on Monday, presenting its latest economic projections in Madrid. That's better than the median estimate of economists in a Bloomberg survey, which forecast that the economy maintained its pace at 0.7 percent in the first quarter. An initial GDP reading from Spain's National Statistics Office is due on April 28.

The Bank of Spain increased its growth estimates for the period covering 2017-2019, citing an improved global economic outlook, which could help Spanish exports, and a stronger internal performance. GDP is set to expand 2.8 percent this year, before slowing to 2.3 percent in 2018, and to 2.1 percent in 2019, it said. That compares with previous forecasts of 2.5 percent, 2.1 percent and 2 percent, respectively.

The central bank's latest projections come a day before Prime Minister Mariano Rajoy faces his first major test as head of a minority government when he presents his budget plan before congress. While the 62-year-old premier can count on the support of the liberals of Ciudadanos and a handful of regional lawmakers, he is still short of votes to guarantee the budget for this year gets approved. The Socialists have already announced they'll vote against it.

“Having a government has reduced some of the uncertainty,” said Pablo Hernandez de Cos, the Bank of Spain's Director General of Economics, Statistics and Research, said in Madrid. “But there are still some risks in terms of a minority government's ability to continue approving reforms, which are so necessary, and continue on the path of fiscal consolidation.”

For more on Rajoy's budget battle, click here

The impact of not having a budget hasn't stalled the Spanish economy so far. The government predicts an economic expansion of 2.5 percent this year, with unemployment decreasing to 16.6 percent by the end of the year. Meanwhile, the Bank of Spain said it expects job creation to continue to grow strongly, helping reduce the jobless rate to 14 percent by the end of 2019. That would be the lowest level since the fourth quarter of 2008.

In terms of inflation, which has picked up since the start of the year, the Bank of Spain predicts consumer prices will increase 2.2 percent this year, mirroring a rise in energy prices. The central bank expects prices to moderate going into next year, forecasting inflation at 1.4 percent in 2018 and at 1.6 percent in 2019.

To contact the reporter on this story: Maria Tadeo in Madrid at mtadeo@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, Ben Sills