UPDATE 2-Spain to slash spending to meet deficit target

* Spain to save 50 bln euros by 2013

* Spain says will meet 3 pct budget deficit target by 2013

* Spending cuts equivalent to 4 pct of GDP

* 2009 budget deficit 11.4 pct GDP

* For economist reaction, click on [ID:nLDE60S1IF]

(Adds details, quotes)

By Paul Day

MADRID, Jan 29 (Reuters) - Spain announced on Friday a plan to save 50 billion euros ($70.20 billion) including government spending cuts totalling 4 percent of GDP as it struggles to reassure bond markets it will not go down the path of Greece.

"We're sure we'll get to 2013 with our homework done," Economy Minister Elena Salgado told a news conference.

The plan included cuts in public wage costs of 4 percent, but despite this belt-tightening, economists were unsure the government would meet its oft-repeated target of cutting its budget deficit to 3 percent of gross domestic product by 2013.

Adding to concerns was the government's admission that its budget deficit for 2009 had ballooned to 11.4 percent of gross domestic product under the impact of recession-sapped revenues and anti-crisis spending programmes.

This compared with an earlier forecast of 9.5 percent.

The austerity plan, plus increased tax revenues from hikes announced last year, the winding down of a massive economic stimulus the return to cyclical growth, would reduce the deficit by the required 8.4 percent of GDP, the government said.

The government has already announced tax rises, including a 2 percentage point increase in value added tax, which should raise about 40 billion euros, or roughly 4 percent of GDP, over the next three years.

Economists weren't convinced the promised savings from the plan or the expected increased income expected by the government from Spain's return to growth would be sufficient to meet the European Union's deficit guidelines.

"It won't be enough to get the deficit down to where they want. Assuming they meet their spending cuts, it'll be offset by less revenue from a weakened economy," said Ben May of Capital Economics, who added that the 2009 deficit was worrying.

The government reiterated it saw GDP shrinking by 0.3 percent year on year in 2010 said it thought economic growth would recover to an annual rate of about 3 percent in 2012 in 2013, a level May and others classed as optimistic.

UNENVIABLE POSITION

Many economists fear Spain is condemned to years of low growth as it deals with the collapse of a construction industry that was the motor of a decade of credit-fuelled growth, together with relatively low productivity rates exacerbated by the high euro exchange rate.

"Spain is in an unenviable position. Tightening fiscal policy too much could be devastating. The difference between Spain and Britain's deficit is the difference between the pound and the euro," said economist at Lombard Street, Jaime Dannhauser.

"Spain is in a dire situation after a boom based on credit dependent domestic sectors that can't be sustained and is in need for a gigantic adjustment to take place. Britain can do this through sterling, but Spain can't make that adjustment."

With Spanish wages indexed to inflation and powerful unions threatening civil unrest if any attempt is made by the government to cut wages, increased labour market competiveness within the euro zone is impossible.

With unemployment hitting 18.8 percent in the fourth quarter of 2009 LDE60S0C1, there is also doubt over whether the government will find the political will to cut spending.

The spread of 10-year Spanish treasury bonds ES10YT=RR over German bunds was trading at about 95 basis points shortly after the government announcement on Friday, compared to 375 basis points for Greek debt GR10YT=RR.

"I think the GDP forecasts are optimistic," said Tullia Bucco of Unicredit:

"But Spain has to convince the European authorities that it is committed to finding a solution to the financial situation and I think the measures confirm the government's commitment to restoring credibility in Spanish finances," she said.

Spain's budget deficit is at similar levels to Greece but its level of public debt to GDP, at about 60 percent this year, is much lower.

The government has also said it will raise the retirement age to 67 from the current 65 on Friday.

Earlier this week, the International Monetary Fund said Spain would be the only major advanced economy to report an annual GDP contraction in 2010, and forecast the economy shrinking 0.6 percent before growing 0.9 percent in 2011.

The two most pressing challenges faced by the Spanish economy are unemployment caused by an inflexible labour market and the ballooning deficit, one of the largest in the euro zone, the Bank of Spain governor said on Tuesday. See [ID:nLDE60P1RF] (Additional reporting by Judith MacInnes, Clara Vilar and Robert Hetz) (Writing by Jason Webb; Editing by Ron Askew and Andy Bruce)