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The European Union forecast that Spain will post its fastest economic growth in eight years in 2015 as Prime Minister Mariano Rajoy allows his budget shortfall to rise in the run up to a general election.

Spanish gross domestic product will grow 2.1 percent next year and the budget deficit will widen to 6.1 percent of GDP unless Rajoy changes his current policy settings, the EU said today in its spring economic forecast. The EUs outlook for the economy next year, raised from a previous estimate of 1.7 percent, exceeds the Spanish governments prediction for a 1.8 percent expansion. Rajoys government also said it will meet its 4.2 percent deficit target in 2015.

Rajoy is trying to convert Spains economic gains into political capital as he enters a string of elections beginning with this months vote for the European Parliament and ending with a general election due by November next year. The economy expanded for a third straight quarter in the first three months as Spain emerges from a six-year slump that pushed unemployment as high as 27 percent.

Employment is expected to grow faster in 2014, the EU said in todays report. Domestic demand takes over as the main growth driver through next year, it said.

With slowing inflation across the euro area crimping Spains competitiveness gains, Rajoy has urged European Central Bank President Mario Draghi to unleash the program of quantitative easing that central bank officials have been devising in order to boost prices across the currency area.

Inflation in Spain will remain very low at 0.1 percent this year and 0.8 percent in 2015, the EU said. Unemployment will see a moderate fall, reaching 24 percent next year.

Whats important is that the European Commission says that next year Spain will grow more than the European average and will create more employment than the European average, Economy Minister Luis de Guindos told reporters in Brussels today. I think thats the message and its a very positive message.

Budget Minister Cristobal Montoro ruled out further budget cuts last week saying that the measures already in place will be enough to meet Spains deficit targets through 2016, when the government is committed to cutting the shortfall to 2.8 percent of GDP. The EU said its forecast for the gap to widen next year assumes temporary tax increases will be allowed to expire by the end of this year.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Zoe Schneeweiss, Patrick Henry

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EU Sees Spains Biggest Expansion Since 2007 as Budget Gap Grows