Bank of Spain expresses worry over continued political uncertainty

The Bank of Spain (BOE) on Friday said it was worried the continued political uncertainty in the country may have an adverse effect on the Spanish economy.

The BOE's quarterly report published on Friday sees it lower its growth predictions from 2016 and 2017 to 2.7 percent and 2.3 percent respectively.

Those are both well below the last predictions made by the government of Prime Minister Mariano Rajoy, which said the Spanish economy would expand by 3 percent this year and 2.9 percent in 2017.

"In Spain, the information available is consistent with a gradual, moderate slowdown in activity from the high pace of expansion sustained throughout 2015," confirmed the Bank, explaining, "the balance of risks surrounding this baseline scenario has worsened considerably in recent months."

The main risk is the political uncertainty in the wake of the Dec. 20 general elections which produced a hung parliament and sees Spain's main parties still struggling to find a consensus three months later.

If no agreement is reached for the formation of a coalition government before May 3, the country will face new elections on June 26. However, with opinion polls predicting similar results even. that is no guarantee the situation will change drastically.

"Doubts over the future course of economic policies may have a negative bearing on private agents' spending decisions, especially if the current situation of uncertainty extends over time," warns the BOE.

The report comes just a day after the acting government admitted his had missed its deficit reduction targets, confirming the country had ended 2015 with a public deficit of 5.2 percent of GDP.

The BOE advises that any government will therefore need to carry out "fiscal consolidation and the application of structural reforms that reduce the vulnerabilities of the Spanish economy and enable its future growth capacity to be enhanced." Endit