Spain hints could miss year-end deficit target

Flags of Catalunya (L-R), Spain and EU wave near Barcelona November 15, 2012.

MADRID (Reuters) - Spain softened on Tuesday its insistence it would meet its year-end deficit target of 6.3 percent of Gross Domestic Product and said "good" reductions in spending by regional governments did not guarantee the objective would be achieved.

At a news conference in Madrid, Treasury Minister Cristobal Montoro declined twice to confirm Spain would meet the European Union-agreed target and instead referred to the European Commission forecast of a budget gap of 7.0 percent of economic output.

"The formal target remains the same and the European Commissioner for Economic and Monetary Affairs, when he assessed the measures taken by the government said Spain's deficit could be around 7 percent of GDP," Montoro said.

"What is really important is to reduce the deficit. The quicker the better but without deepening the recession... We shouldn't focus too much on this magic figure of 6.3 (percent of GDP)," he added.

Some analysts fear local finances and higher social security costs could push Spain over its 6.3 percent deficit target.

The central government has said it would not make an end-of-year review to adjust pensions to inflation since its deficit target was the top priority. On Sunday, Prime Minister Mariano Rajoy said the target would be hard to meet.

Economy Minister Luis de Guindos said on Tuesday the economy was set in the last three months of 2012 to register its worst performance since the start of the current recession.

Spain's 17 autonomous regions had a public deficit of 0.93 percent of GDP at the end of September, compared to a year-end target of 1.5 percent, the treasury ministry said on Tuesday.

Stripped of extraordinary items, such as early transfers of funds from the central government, the figure came to 1.14 percent of GDP, the ministry said.

"Do these good figures guarantee the 1.5 percent target will be met? No, there is no guarantee. We should not relax," Montoro said, adding the progress made showed the target was feasible.

Seven regions, including Catalonia or Andalucia are not on track to meet their year-end target. The central government has a target of 4.5 percent of GDP, including the cost of funding the social security system.

Its deficit was 4.13 percent of GDP in the January-October period but that does not include the social security system, which is set to register a deficit of 1 percent of GDP according to a document sent to the European Commission in October.

(Reporting by Feliciano Tisera, writing by Julien Toyer; Editing by Sarah Morris and Michael Roddy)