Spain fails to rein in budget deficit Spain is veering significantly off course from its EU-imposed budget targets, with next year's deficit expected to reach 6 per cent of economic output instead of the 4.5 per cent agreed just four months ago. The projection, contained in the European Commission's autumn economic forecast issued on Wednesday, is the clearest sign to date that Madrid will need to take additional austerity measures to get its budget back on track, or seek yet another delay from Brussels. It would be the third such change to Spain's targets since Mariano Rajoy, the centre-right prime minister, took office a year ago. The estimates also show that without any policy changes, Spain's budget deficit would grow again in 2014, to 6.4 per cent of gross domestic product, well off the 2.8 per cent target agreed with Brussels. The sharp revisions come at a particularly difficult time for Madrid, with some EU leaders urging Mr Rajoy to accept an EU-led assistance programme to lower sovereign borrowing costs, which several senior EU officials believe would also help restart Spain's sputtering economy. The commission's economic forecast shows Spain is already at risk of spiralling into a deep recession, with its economy projected to shrink 1.4 per cent both this year and next. The Spanish government based its latest budget for 2013 on a modest contraction of only 0.5 per cent, whereas most private sector economists, the International Monetary Fund and now the commission are expecting a recession three times as bad. The deterioration in Spain's economy and public finances - and the risks of self-defeating austerity measures - poses a serious dilemma for the commission, the European Central Bank and other eurozone governments that have pushed Spain to show fiscal discipline. "Public finances, which suffered a significant deterioration in the wake of the crisis, need to be brought back on to a sustainable path," the commission said in its report. Ambitious fiscal consolidation plans are being put in place but are weighing on the short-term growth outlook. The IMF has urged European governments to refrain from additional austerity measures if growth comes in below official forecasts, which appears highly probable in Spain's case. The fund says that governments should stick to their long-term consolidation plans, but allow for higher welfare spending and lower tax revenues if growth contracts more than expected. It argued that governments had underestimated the effects of austerity on growth - so-called "fiscal multipliers" - at a time when monetary policy has reached the limits of effectiveness.