Reuters International

A rainbow is seen as a bird flies past a giant Spanish flag at Colon square in Madrid, Spain, July 27, 2016. Picture taken July 27, 2016. REUTERS/Susana Vera


MADRID (Reuters) - Spain will fail to meet its budget commitments for 2017 unless it gets a stable government soon, its acting economy minister said on Thursday, a day after the country lurched closer to a third parliamentary election in a year.

Spain's political parties have failed to negotiate their way to forming a workable coalition since an inconclusive election in December, with a second ballot in June producing a similar result.

Luis de Guindos said economic growth was nevertheless likely to remain robust this year, thanks to momentum in the job market and a recovering banking sector which helped reassure consumers and investors.

But the political impasse would start to weigh on output, and particularly public finances, if it dragged on, he said in a radio interview.

Chances of a third election in a year increased on Wednesday when acting Prime Minister Mariano Rajoy of the conservative People's Party (PP) lost a first parliamentary confidence vote on his bid for a second term in office.

De Guindos said the acting government - facing a mid-October deadline to draft a fiscal plan for 2017 for the European Commission - would probably have to hand in an extension of 2016's budget for now.

That would not contain new measures needed to trim the fiscal gap as Brussels has demanded.

"It's clear that will not be enough to meet our 2017 targets," De Guindos said. "(So)... it's essential that we have a fully-functioning government that can design a budget for next year."

Political analysts say that, even if a government is formed by the end of September - and a series of regional elections this month are further complicating talks - Spain will struggle to present its 2017 budget plans to Brussels in time.

After missing its target in 2015, the country needs to shrink its public deficit to 4.6 percent of output in 2016 from 5 percent last year, and further to 3.1 percent in 2017.

To keep finances on track, new fiscal measures such as changes to the corporate tax regime were needed, De Guindos added.

On the broader economy, he said GDP was unlikely to expand less than the 3.2 percent rate recorded in 2015, though there were signs that growth was slowing, for instance in demand for credit.

(Reporting by Sarah White, Editing by Sonya Dowsett and John Stonestreet)


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