UPDATE 1-Spanish budget deficit widens as economy slows

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MADRID Aug 28 (Reuters) - Spain racked up a central government budget deficit of 9.97 billion euros ($14.75 billion) in the first seven months of 2008, a sharp turnaround from last year's surplus that showed the impact of an economic slowdown.

The Economy Ministry said on Thursday the deficit was equivalent to 0.89 percent of gross domestic product and that it compared with a surplus of 7.52 billion euros in the same period last year.

The government did not provide a monthly figure for July, but the accumulated deficit for the first half of the year totalled 4.68 billion euros, which was the first such shortfall for three years.

A sharp slowdown in economic activity, especially in the building sector, cut net non-financial revenues by 4.2 percent while net non-financial spending rose by 5.9 percent.

Spain posted a record budget surplus of 2.2 percent of GDP last year, when the economy grew by a robust 3.7 percent.

But the government has had to boost spending and tax revenues have fallen as economic growth slowed to 0.1 percent in the second quarter of the year compared with the previous three months.

The pace at which the economy has lost momentum has prompted analysts to talk of the possibility of recession, which would place an even heavier burden on the public coffers. (Reporting by Jason Webb, editing by Swaha Pattanaik)