Investment Keeps Spain Economy Going as Catalonia Clouds Outlook

A pick up in investment kept the economic momentum going in Spain as the Catalan crisis clouds an otherwise strong outlook.

Investment in machinery jumped 2.5 percent as output grew 0.8 percent in the third quarter, the National Statistics Office said Thursday, confirming its initial reading. Spending on intellectual property jumped 1.9 percent, the highest reading this year so far.

While the figures for the quarter represent a slight decline from the previous three-month period’s 0.9 percent, Spain continues to outperform the euro area’s average, taking the country to the forefront of the bloc’s recovery. From a year ago, Spain grew 3.1 percent.

While the nation is on track to extend a four-year recovery with at least 3 percent growth this year, the Spanish government has warned the Catalan crisis could hurt the economy in 2018 if downside risks materialize.

Catalans are due to vote in a regional election next month following an ill-fated declaration of independence that prompted thousands of companies to shift their corporate addresses away from the region. The troubles prompted Prime Minister Mariano Rajoy to invoke unprecedented constitutional powers to oust the regional government and take direct control of Catalonia.

At the height of the crisis, which saw ousted Catalan leader Carles Puigdemont proclaim secession from Spain unilaterally, the Spanish government cut its growth forecast to 2.3 percent from 2.6 percent for 2018, citing political risks. Catalonia accounts for almost a fifth of the nation’s gross domestic product, making it the biggest regional economy.

Earlier this week, Rajoy said a return to the constitutional order after the Dec. 21 ballot could see a more benign scenario play out that could allow Spain to continue closer to 3 percent instead for a fourth straight year. Economy Minister Luis de Guindos suggested last week a loss of support for the pro-independence parties could also serve as a catalyst for Spanish equities, which have taken a hit as a result of political tensions, and risk premiums.

So far, polls point to a result that is too close to call with both sides winning a similar share of votes with no obvious majorities. While pro-independence party ERC is seen winning the ballot, pro-Spain parties Ciudadanos and the Catalan Socialists are also forecast to add seats.
Source: Bloomberg