Spain raises civil servants' salaries in election year

MADRID (Reuters) - Spain's ruling People's Party (PP) agreed on Thursday to award civil servants a 1 percent pay rise next year, their first hike in five years after public employee salaries were reined in as part of cost cuts during a deep recession.

The move comes ahead of a parliamentary election expected in November. There are around 3 million civil servants in Spain, accounting for around 14 percent of the work force.

Spain's economy has powered forward since emerging from recession in 2013 and on Thursday the country posted its fastest growth rate in eight years.

The promise of a pay rise and a return of part of a yearly bonus scrapped in 2012 at the height of the economic crisis was made by Treasury Minister Cristobal Montoro in a meeting with unions on Thursday, government and union sources said.

Spain cut wages for civil servants by an average of 5 percent in 2010, under the previous Socialist government, and has frozen them since then.

A quarter of the scrapped 2012 bonus will be paid back this year, a government source said, and half of it in 2016.

Spain needs to whittle its budget deficit down to 4.2 percent of economic output this year to comply with targets agreed with the European Union, from 5.7 percent in 2014.

Tax cuts brought forward by the government will make it harder to offset regional spending and reach the deficit target, Spanish fiscal watchdog Airef reported earlier this month.

In July, Prime Minister Mariano Rajoy brought into effect 1.5 billion euros in across-the-board tax cuts that were originally scheduled to start in early 2016.

(Writing by Sonya Dowsett; Editing by Mark Heinrich)