Austrian 2014 budget deficit won't exceed 3 pct of GDP-panel

VIENNA, July 9 Wed Jul 9, 2014 6:53am EDT

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VIENNA, July 9 (Reuters) - Austria's budget deficit will not exceed the European Union's ceiling of 3 percent of gross domestic product this year despite the costs of creating a "bad bank" for nationalised lender Hypo Alpe Adria, the country's fiscal watchdog said.

"Even considering the restructuring costs for Hypo Alpe Adria ... the upper (deficit) limit will not exceed 3 percent," Bernhard Felderer, head of the Fiscal Council board, told a news conference at the release of its annual report on Wednesday.

"You know we estimate (a deficit of) 2.7 percent for this year. We think a bit more will come but not to the extent that we will exceed 3 percent," he added.

The Hypo bad bank to wind down around 18 billion euros in assets will push up the deficit and boost state debt to nearly 80 percent of GDP this year.

One-off items including windfall revenue from a mobile telecoms frequency auction helped reduce Austria's state deficit to 1.5 percent of GDP in 2013.

The Fiscal Council estimated that Austria's structural deficit - which strips out one-off items - was 1.3 percent of GDP last year, above the government's 1.1 percent estimate.

The structural gap is likely to hit the medium-term target of 0.45 percent only in 2016, said Felderer, adding that Austria needed additional measures promised by the government in April to avoid significant deviations from the target path.

Finance Minister Michael Spindelegger has been seeking additional savings from ministries after Austria's main economic research institutes last month trimmed their 2014 growth forecasts to 1.4-1.5 percent from 1.7 percent. (Reporting by Michael Shields; Editing by Gareth Jones)

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