Spain central bank doubtful on Rajoy deficit pledge

Spain's central bank warned Tuesday that the country would not meet the EU-set deficit target until 2018 -- a year later than promised by the acting government.

The bank said on its website Spain's public deficit would likely fall to 4.1 percent of gross domestic product this year, then to 3.4 percent in 2017 and finally 2.9 percent in 2018.

Under European Union rules, member states' deficits must not exceed 3 percent of GDP, and Spain's acting conservative government has promised that it would fall under that limit in 2017, according to an official letter published by the El Pais daily.

"The difference with official forecasts is due to the fact that these (bank's) estimates take in a more moderate increase in public revenues and in nominal GDP," the bank said, adding that the rise in spending would however be the same.

The deficit is a contentious issue in Spain as general elections approach at the end of the month, particularly after acting Prime Minister Mariano Rajoy promised tax cuts.

Critics have questioned how he will be able to do this and still bring down the deficit.

Austerity-weary Spain has overshot its fiscal targets repeatedly, making it one of the worst performers in the eurozone.

The European Commission, the bloc's executive arm, will decide in the coming months whether to slap sanctions on Spain for public overspending -- an unprecedented step if it happens.

The Bank of Spain stuck to its forecast of 2.7 percent economic growth this year and 2.3 percent in 2017 after a 3.2 percent expansion in 2015.

It predicted the Spanish economy, the eurozone's fourth largest, would grow by 2.1 percent in 2018. It is the first time that the central bank has issued a growth forecast for 2018.

The central bank said tailwinds that propelled growth last year, such as lower oil prices and a favourable euro exchange rate, will progressively fade, leading to a slower pace of economic expansion.