The executive – which has been running the country in a caretaker capacity for more than eight months following two inconclusive elections – had earlier forecast that the economy would grow 2.9 percent in 2016, and 2.3 percent next year.
“At the end of the year, Spain's growth will be three percent,” Rajoy told lawmakers of his conservative Popular Party, slightly upping the forecast.
But “some economic indicators are not as positive,” he warned, pointing to the potential negative consequences of Britain leaving the European Union and Spain's ongoing political paralysis.
The blockage started after elections on December 20th failed to give any party an absolute parliamentary majority, as upstart groupings Ciudadanos and Podemos shook up Spain's long-established two-party system.
Efforts to forge a coalition were unsuccessful as rival parties were unable to overcome their differences, prompting repeat elections in June with a similar result, and a similar inability to come to any kind of government deal.
The country now appears to be heading towards a third round of elections.
Rajoy said the blockage meant that Spain's caretaker executive would not be able to adopt a new budget for 2017, as it can only manage day-to-day affairs and has no power to implement new spending measures or modify existing ones.
“The non-approval of this budget will affect the interests of many Spaniards,” he warned, such as people working in the public sector or investment-led areas.
By October 15th, Spain is also due to tell the European Commission what measures it will take to bring its public deficit down to the planned 4.6 percent of GDP this year, and 3.1 percent in 2017, Rajoy added.
Spain risks being fined by Brussels if it misses the deadline.