Spain's central bank today forecast that the country, which is struggling to slash its deficit and debt, will fall back into recession this year with a contraction of 1.5%.
The Bank of Spain said, however, it expects Spain's economy to make a modest rebound in 2013 with growth in gross domestic product (GDP) of 0.2%. It added that it estimates the economy to have grown by 0.7% in 2011.
"In 2011 the modest recovery which the Spanish economy began a year earlier weakened as the euro zone sovereign debt crisis extended to a greater number of countries and financial market tensions strengthened," it said in a report.
The return to recession will make it harder for Spain, the euro zone's fourth largest economy, to meet its goal of slashing the public deficit to 4.4% of output.
Spain's new government announced shortly after it was sworn in last month that the public deficit last year would come in at around 8% of GDP, way above the 6% target agreed with Brussels by the previous Socialist government.
It has announced spending cuts of €8.9 billion, and tax increases to bring in €6.3 billion, to reduce the deficit and make sure the country does not get dragged into the debt crisis mire that has already forced Greece, Ireland and Portugal to seek financial bail-outs.
Spain emerged only at the start of 2010 from an 18-month recession, triggered by the global financial crisis and a property bubble collapse, which led the jobless rate to balloon to 21.5%, the highest level in the industrial world.
