MADRID (Bloomberg) — Spain's budget deficit will be larger than Greece's shortfall this year, the European Commission forecast, signalling the Madrid government's growth forecasts may be too optimistic.

Spain's budget deficit will decline to 9.8 percent of gross domestic product this year, from 11.2 percent in 2009, the European Commission said yesterday. The shortfall in Greece, which is set to receive a 110 billion euro EU-led bailout, is projected to fall to 9.3 percent from 13.6 percent last year, the Commission said in its semi-annual forecasts. In 2011, Spain's gap will be 8.8 percent, compared with 9.9 percent in Greece.

The extra yield investors demand to hold Spanish debt rather than German equivalents surged to a 15-month high yesterday as the European Union's rescue plan for Greece failed to insulate other euro-area nations from the crisis. Even as Spain's debt burden, at 53 percent of output, is lower than the EU average, its budget deficit was the euro region's third- largest last year after Ireland and Greece.

The Commission expects Spain's economy to grow 0.8 percent next year, compared with the government's forecast of 1.8 percent. Deputy Finance Minister Jose Manuel Campa justified the ministry's growth estimates, which are also higher than those of the International Monetary Fund, saying on Mionday that the government expects the savings rate to decline further and exports to show more resilience than other economists do.