* Weaker global economy, austerity measures to slow growth
* Deficits seen declining, but debt keeps growing
* German growth seen slowing substantially next year
(Combines stories, adds Rehn comments)
By Jan Strupczewski
BRUSSELS, Nov 29 (Reuters) - The euro zone's economy will slow slightly next year as governments cut spending to win back financial market confidence, but private demand will give growth a fresh boost in 2012, the European Commission said on Monday.
In its twice-yearly economic forecasts for the 27-nation bloc, the European Union executive said growth in the single currency area would slow to 1.5 percent in 2011 from 1.7 percent seen this year, but rebound to 1.8 percent in 2012.
"With private domestic demand as a whole strengthening, the recovery is said to be increasingly self-sustaining over the forecast horizon," Economic and Monetary Affairs Commissioner Olli Rehn told a briefing.
The main engine of growth in the euro zone will be the biggest economy Germany, where growth is likely to slow substantially next year from the 3.7 percent expansion seen in 2010, but still be a respectable 2.2 percent.
A weaker global economy will cut demand for euro zone exports, but many euro zone governments will also be slashing spending and raising taxes to return public finances to a sustainable path.
The aggregated euro zone budget deficit will shrink next year and in 2012, but debt will continue to rise, with that of Belgium and Ireland becoming larger than their annual output, the Commission said.
Concern over the ability of Ireland to service its huge debt, which was boosted by government support to the ailing banking sector, has forced Dublin to seek EU financial help and prompted concern Portugal and even Spain could be next.
The budget deficit of the countries using the euro will fall to 4.6 percent of gross domestic product next year from 6.3 percent expected this year and further to 3.9 percent in 2012.
Government debt is set to rise to 86.5 percent of GDP next year from 84.1 percent in 2010 and increase to 87.8 percent in 2012.
"A determined continuation of fiscal consolidation and frontloaded policies to enhance growth, are essential to set a sound basis for sustainable growth and jobs," Rehn said.
"The turbulence in sovereign debt markets underlines the need for robust policy action."
PORTUGAL, SPAIN TARGETS
The market spotlight has now turned to Portugal, which has a large debt, but very slow growth and an uncompetitive economy.
Weighed down by heavy cuts in budget spending and higher taxes, Portugal will fall back into recession, contracting 1 percent in 2011, and return only to weak growth of 0.8 percent in 2012, the Commission forecast.
Lisbon plans to cut its budget deficit to 4.9 percent in 2011 from 7.3 percent this year, but its debt will rise to 88.8 percent of GDP in 2011 from 82.8 percent seen this year.
"In case the fiscal target would be missed because of somewhat lower growth materialising, then the government assumes that is essential still to meet the fiscal target if necessary by taking additional measures," Rehn said.
"And moreover, it is clear that it is essential that Portugal will develop and implement equally ambitious structural reforms to reach its growth potential," he added.
Ireland, which on Sunday agreed on an 85 billion euro rescue package from the EU and the International Monetary Fund, will see its economy grow 0.9 percent next year after a 0.2 percent contraction this year, but growth should accelerate to 1.9 percent in 2012, the Commission said.
Dublin will have the biggest budget gap in the EU of 32.3 percent this year, because of huge costs of supporting its ailing banking sector, but will reduce that shortfall to 10.3 percent next year and cut it further to 9.1 percent in 2012.
"The Irish economy is flexible and while there are serious challenges concerning public finances and especially the banking sector... it has the capacity of rebounding rapidly from this recession. Export growth is already a fact," Rehn said.
Spain, also in the market spotlight because of its low growth and a potentially costly repair of its banking system, will contract 0.2 percent in 2010 but grow again 0.7 percent in 2011 and 1.7 percent in 2012, the Commission said.
Its deficit is to fall to 6.4 percent in 2011 from 9.3 percent in 2010 and to 5.5 percent in 2012 as Madrid's austerity measures kick in. Spain wants to cut its budget deficit to 6 percent next year, a target Rehn called challenging.
"The Spanish fiscal strategy...is on track. If growth next year is lower than expected, it is necessary to take further measures to make sure that the fiscal target is met," he said.
While deficits will decline, debt will still rise.
The highest debt of all EU countries will be in Greece, where debt will balloon to 105.2 percent of GDP next year from 140.2 percent in 2010 and rise even further to 156 percent in 2012.
Belgium will see its debt rise from 98.6 percent of GDP this year to 100.5 percent in 2011 and to 102.1 percent in 2012.
Ireland's debt is also likely to grow to 107 percent of GDP next year from 97.4 percent expected in 2010, and to jump to 114.3 percent in 2012.
For full details double click on: http://ec.europa.eu/economy_finance/eu/forecasts/2010_autumn_forecast_en.htm
(Reporting by Jan Strupczewski, editing by Rex Merrifield and Patrick Graham)