Spain's jobs-scarce economy plunged back into recession in the first quarter of 2012 as employment slumped even further, the Bank of Spain said.
Barely two years after emerging from the last downturn, Spain slid into recession again with two consecutive quarters of economic contraction, the central bank said in a report.
Gross domestic product fell by an estimated 0.4% in the first quarter of 2012 after a 0.3% decline in the last three months of 2011, the bank said.
Spain, whose unemployment rate at the end of 2011 was already the highest in the industrialised world at 22.85% overall and nearly 50% for the young, suffered a further jobs slump.
"Employment fell again, sharply, with an estimated year-on-year decline of 4%," the report said, noting also a "significant" decline in unit labour costs. The government forecasts the jobless rate will rise to 24.3% this year as the sagging economy struggles to absorb millions of jobs destroyed in the collapse of a property boom in 2008.
The European Central Bank had helped to ease market tensions, Spain's bank said, alluding to the ECB's decision to extend more than €1 trillion in low-interest, three-year loans to the region's banks.
Worries were further soothed by an international rescue programme for Greece, by the restructuring of Greek debt and by euro zone economic governance reforms, it said.
''Nevertheless, the instability returned in the first days of April, affecting Spain and Italy with particular strength, because of doubts raised by the adjustment process in which both countries find themselves," the bank said.
New tensions pushed the borrowing rate on Spain's benchmark 10-year government bonds above a symbolic 6% threshold, the central bank noted. Investors in Spanish 10-year bonds demanded an additional return of about 440 basis points when compared to German bonds, it said.
At the same time, the stock market has slumped by about 20% since the beginning of the year. The decline intensified today as Madrid's IBEX-35 index of leading shares slumped 2.8% in late morning, hit by concerns over the French presidential election and Spain's debt.
Investors showed some concern after French Socialist Francois Hollande beat President Nicolas Sarkozy in a first round of voting Sunday. The pair face off in a final round May 6.
Spanish markets were among those hardest hit, in part because of doubts over Madrid's ability to meet its public debt-cutting goals and thus prevent its sovereign debt mushrooming beyond control.
Spain has promised to cut its public deficit to 5.3% of GDP in 2012 and just 3% of GDP in 2013, after allowing last year's deficit to hit 8.5% of GDP - 2.5 percentage points over target.
Desperate to meet its targets, the government has approved €27 billion in spending cuts and tax increases in its 2012 budget, after an earlier round of €8.9 billion in cuts and €6.3 billion in extra taxes. Analysts say the recession will make those targets even harder to reach, as tax income declines and welfare costs rise.