Spain is now the last major European economy stuck in recession, official data show today, as its deficit-plagued public finances are also cause for disquiet in the euro zone.
While Greece's debt and deficit crises are seen as posing a real risk to euro zone cohesion, and are the focus of a critical European Union summit in Brussels, Spain too has rattled investors in recent days.
The economic downturn has taken a heavy toll on the country, where a near 19% unemployment rate is the highest in the 27-member EU.
Europe's fifth-largest economy has proved especially vulnerable to the global financial crunch because growth relied heavily on credit-fuelled domestic demand and a property boom - boosted by easy access to loans - that collapsed in late 2008 after a decade of frenzied building activity.
There are now doubts Spain will be able to slash its public deficit to the EU limit of 3% of national output by 2013, as it has promised, after the shortfall widened to 11.4% last year.
The Spanish economy shrank 0.1% in the fourth quarter of 2009 compared with the third, the national statistics agency INE said today - its sixth quarterly contraction in a row.
The statistics agency said gross domestic product (GDP) contracted by 3.1% compared to the last three months of 2008, with the economy shrinking 3.6% overall in 2009.
The Spanish government, which says the worst of the slump is over, has forecast a return to growth in the second half of this year, although a contraction of 0.3% is predicted for the whole of 2010.
The International Monetary Fund expects the economy to contract 0.6% this year, compared to growth for the euro zone of 1%. The government insists that recent measures taken, including planned spending cuts of €50 billion will bear fruit.
Total accumulated public debt is projected to rise from 55.2% of GDP in 2009 to 74.35 in 2012, also well above Europe's 60% limit.
The Madrid government, bristling at comparisons with Greece, has asserted that Spain's overall public debt burden is substantially lower than that Greece's level of 113% of GDP.
Officials have also pointed to a tradition of fiscal discipline in Spain, along with a savings rate that amounted to 18-20% of GDP.
