The escalating political crisis in Catalonia has prompted Spain to downgrade its growth forecast for 2018, according to the government, a sign that tensions are hurting economic sentiment.
In a letter submitted Tuesday morning by the center-right Spanish government to European authorities, he said the economy would grow by 2.3% next year instead of the 2.6% previously forecast, AFP reported. .
The Economy Ministry blamed the revisions both on slower global growth and lower domestic consumer spending due to the political deadlock in Catalonia. Catalonia represents a fifth of the Spanish economy.
Tensions grew following an illegal referendum on independence in Catalonia on October 1, in which more than two million people defied Spanish courts and voted for independence. Catalonia has more than 5.3 million eligible voters.
The Catalan government has since vowed to declare independence, threatening to create one of the most serious political and constitutional crises Spain has faced since its return to democracy in the 1970s.
The Spanish government has given Catalan leaders until Thursday this week to give up claiming independence or face the possibility of direct government from Madrid.
In a move that is likely to increase tensions in the meantime, on Monday evening a judge ordered the imprisonment of two leaders of the Catalan independence movement while they are investigated into possible charges of sedition.
Spain’s state is stepping up pressure on separatist leaders as Prime Minister Mariano Rajoy tries to persuade Catalan President Carles Puigdemont to abandon his campaign for independence or see Madrid take direct control of the region.
Meanwhile, the euro continued to fall and stocks fell as Spain’s uncompromising response to the threat of Catalan secession fueled fears the crisis could escalate. The dollar gained amid speculation the next Federal Reserve chairman will be more hawkish, while Treasuries have fallen slightly, Bloomberg reported.
The common currency fell for a fourth day, the longest streak of losses since May. The Stoxx Europe 600 Index edged down after mixed trading in Asian stocks earlier, after North Korea warned a nuclear war could “break out at any time.”
Gold fell and the South Korean won drove most emerging market currencies down. WTI crude resumed its advance above $ 52 a barrel as tensions in Iraq persisted.