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Brazil removes Eletrobras from 2018 budget, cuts GDP estimate

(Recasts with details from news conference)

By Marcela Ayres

BRASILIA, May 22 (Reuters) - Brazil on Tuesday removed a forecast for revenue from the privatization of power utility Centrais Elétricas Brasileiras SA from the 2018 budget, citing growing risks that those funds would not materialize this year.

The government also cut its forecast for gross domestic product growth this year, highlighting an underwhelming recovery from Brazil's deepest recession in decades.

Policymakers had expected to raise 12.2 billion reais ($3.3 billion) in 2018 from the privatization of Eletrobras, as the company is known, which has faced resistance in Congress.

In a news conference, Planning Minister Esteves Colnago said the government decided to be "prudent."

"Eletrobras is still a priority for the government, but there is a risk that this revenue will only be booked at the start of next year," Colnago said.

His remarks underscored the struggles of President Michel Temer's administration to advance its privatization plan ahead of this year's October presidential and congressional elections while also trying to stem growth of public debt.

The government had already frozen 8 billion reais worth of 2018 spending in February to account for potential delays in the plan's approval.

On Tuesday, it freed up 2 billion reais in spending, mostly due to increased revenue from oil auctions thanks to higher crude prices and royalties.

This helped to bring about a 6.064 billion real increase in the government's 2018 net revenue forecasts, offseting a 1.423 billion real rise in estimated primary expenses.

Under the new figures, the 2018 primary deficit would be 6.198 billion reais smaller than this year's target of a 159 billion real deficit, compared to 1.557 billion reais previously.

Under the revised budget, however, spending would exactly match a spending cap implemented by Temer's administration, giving the government "no more leeway," Colnago said.

The government now forecasts the economy to grow 2.5 percent in 2018, down from 2.97 percent previously. The downward revision comes in the wake of a string of disappointing economic indicators spanning everything from retail sales and industrial activity to consumer sentiment.

Economic Policy Secretary Fabio Kanczuk said the cut reflected weakness in services and nondurable goods consumption in the first quarter. Spending on durable goods and investments remained "extremely strong," he added, a sign of a consistent upward trend.

The government raised its forecast for 2019 growth to 3.3 from 3 percent.

($1 = 3.66 reais) (Reporting by Marcela Ayres; Writing by Bruno Federowski; Editing by Will Dunham)