UPDATE 2-Spanish deficit, retail figures deepen economic gloom
* Spain revises up 2012 deficit to 6.98 pct GDP, vs 6.7
* Central govt deficit 2.2 pct GDP to end-Feb
* Retail sales in freefall, current account in deficit
By Paul Day
MADRID, March 27 (Reuters) - Spain revised up its public deficit for 2012 on Wednesday, piling pressure on the government to scale down its budget ambitions for 2013 as data suggested economic recovery was a distant prospect.
Treasury Secretary Marta Fernandez Curras said the fiscal gap was 6.98 percent last year rather than the 6.7 percent announced previously - and excluding the billions of euros Spain borrowed to recapitalise its ailing banks.
Spain moved away from centre stage in the euro zone debt crisis at the end of 2012, with renewed appetite for the country's debt among investors backstopped by a European Central Bank bond-buying promise.
But that demand could wane if market concerns the savings levy imposed under Cyprus' bailout might set a precedent are not assuaged, or if Spain continues to show no signs of getting a grip on its finances or healing its shrinking economy,.
That turnaround seems even more distant following Wednesday's news on the deficit, as well as data showing retail sales fell 8.0 percent year-on-year in February, reflecting the impact of an unemployment rate that has pushed beyond 25 percent.
"We continue to have a fairly negative short-term view on the Spanish outlook and we're expecting GDP to fall 2.2 percent this year and by 2.1 percent next year, considering continued falling consumption," said Guillaume Menuet, analyst at Citi.
Spain is widely expected to cut its growth forecast and widen its deficit prediction for 2013 in April, and implement a new series of structural reforms and spending cuts by June to win breathing space from the European Union on its public finances.
The Treasury, whose minister Cristobal Montoro said on March 6 that any revision to last year's deficit would be downward , said the higher figure reflected rebates to taxpayers and companies that European statistics agency Eurostat had forced the government to include in the 2012 accounts rather than 2013.
A Eurostat spokesman declined to comment on the 6.98 percent figure until official 2012 data is released on April 22.
Fernandez Curras also said the central government deficit was 2.22 percent of economic output at the end of February - a large chunk of the target of 3.8 percent of GDP the government has set for the entire year.
Gross domestic product is expected to contract sharply this year while unemployment could top 27 percent and the public deficit will remain high, at around 6 percent of output, the Bank of Spain said on Tuesday.
Retail sales last grew in June 2010 and their fall has accelerated since September, when the government increased consumer taxes to curb its public deficit. They fell 10.0 percent in January, according to Wednesday's revised data.
"With fixed investment on a downward trajectory and house prices which have not finished falling, it's difficult to think that consumption will recover in any significant way," Citi's Menuet said.
"(Economic) growth comes back when deleveraging is over, and we think that's more likely in 2015 than 2014."
Spain's current account was in deficit to the tune of 2.64 billion euros in January, reversing the positive trend from the past months, data from the Bank of Spain also showed.
The trade deficit alone stood at 2.86 billion euros in January. This however tightened from a 3.2 billion euro deficit in the same month in 2012.
On another positive note, Spain registered capital inflows of 30.4 billion euros in the first month of 2013.
But analysts caution that that does not reflect a possible negative impact from the Cyprus bailout crisis on investor sentiment towards the rest of the euro zone periphery.
Consumer prices rose by 2.4 percent year-on-year in March, data from the National Statistics Institute (INE) showed on Wednesday, the lowest rise since July. That compared to a rise of 2.8 percent in February.