Spain's economy has skidded back into recession, a Bank of Spain report has signalled, as activity shrank in the first quarter of 2012.
If the report is confirmed by official data, it would mean economic output has declined for two straight quarters and that Spain is in a recession as the government takes an axe to spending.
"The most recent information relating to the beginning of 2012 confirms a continuation of the contraction of activity in the first quarter of this year," the bank said in its March economic bulletin.
The central bank did not give a figure for the first quarter contraction but said it was mainly caused by a decline in private consumption in January and February to levels not seen since 2010.
The Spanish economy, the fourth-biggest in the euro area, had already shrunk by 0.3% in the fourth quarter of 2011 compared to the third quarter, according to official data. Two consecutive quarters of falling output is the technical definition of a recession.
Prime Minister Mariano Rajoy's conservative government, in power since December, is to announce on Friday a 2012 budget that assumes an economic contraction of 1.7% this year after 0.7% growth in 2011.
Spain emerged only at the start of 2010 from an 18-month recession triggered by a global financial crisis and a property bubble collapse that destroyed millions of jobs and left behind huge bad loans and debts.
The jobless total hit 5.27 million people at the end of 2011, pushing the unemployment rate to 22.85%, the highest level among members of the Organisation for Economic Cooperation and Development.
The Spanish government has overhauled labour rules to make it cheaper to fire workers and easier to lower wages, measures it argues will eventually encourage job creation when the economy improves. Unions have called a general strike on Thursday over the changes to the labour laws.
The government has also implemented €8.9 billion worth of spending cuts and €6.3 billion in tax rises to rein in the public deficit. Spain has negotiated with Brussels a relaxation of its 2012 public deficit target, vowing to keep the shortfall to within 5.3% of gross domestic product rather than the original goal of 4.4%.
