Spain cuts growth forecast to 2.3 percent in 2018 over Catalonia crisis

Spain’s government announced late Monday it was cutting its forecast from 2.6 percent to 2.3 percent economic growth next year, saying the political crisis in Catalonia was creating uncertainty.

It said in a budget plan sent to Brussels that it was down to the economic cycle as well as “a slight containment of domestic demand, resulting from the negative impact of the uncertainty associated with the current political situation in Catalonia”.

Prime Minister Mariano Rajoy had already warned about the economic impact of the political standoff in a letter Monday to separatist Catalan leader Carles Puigdemont.

“The latest steps taken by you and your government are causing a major divide in Catalan society, as well as enormous economic uncertainty that threatens people’s well-being,” Rajoy wrote.

Representing about a fifth of Spain’s economic output, separatists argue that wealthy Catalonia pays more into the country’s coffers than it gets back and could prosper by going it alone.

But those who back unity say a split would spell economic and political disaster.

The two biggest Catalan banks are among hundreds of companies that have moved their legal headquarters to other parts of Spain, while ratings agency Standard and Poor’s has warned of a recession in the region if the crisis drags on.

The Spanish government says growing uncertainty over Catalonia, which is deeply indebted to Madrid and which cannot borrow internationally, imperils Spain’s recovery from the financial crisis.