(Adds detail on fiscal deficit, comment)
SANTIAGO, July 14 (Reuters) - Chile's economy will likely grow 3.2 percent in 2014, the country's budget office said on Monday, reducing its previous forecast of 3.4 percent due to cooling domestic demand and an earthquake and fire in April.
Domestic demand, a key driver of the economy, is seen growing at a relatively tepid rate of 1.8 percent this year, the government said, as investment and consumption wane in the world's top copper exporter.
The government's estimate of Chile's effective fiscal deficit for 2014 rose to 2.0 percent of gross domestic product, from 0.9 percent previously, budget chief Sergio Granados told a Congressional committee.
"There are additional pressures on public spending, as a consequence of under-usage during the previous administration, commitments on back-payments that were not budgeted, projected deficits in some ministries and the financing of reconstruction in the north and Valparaiso," said Granados.
Just weeks after new center-left president Michelle Bachelet began her term in March, a powerful quake and small tsunami hit northern Chile, followed by a blaze that wiped out hundreds of homes in the central port city of Valparaiso.
Granados added that annual inflation was likely to end the year at 3.9 percent, just inside the central bank's target 2 to 4 percent range. (Reporting by Antonio de la Jara; Editing by James Dalgleish and Chizu Nomiyama)