Bank of Spain warns economy will sink further

The Bank of Spain has predicted that Spain’s economy will sink deeper into recession this year.

In its annual update of economic forecasts, the central bank said it saw the economy shrinking by 1.5 per cent in 2013. Austerity measures continue to worsen the effects of the bottom falling out of the property market.

The bank’s estimate is below the official forecast, although the government is widely expected to revise the 2013 figure in April.

Most economists expect the economy to struggle to return to growth this year on the back of poor domestic demand and a weak external sector.

The eurozone’s fourth largest economy entered into its second recession since 2009 at the end of 2011, as the effects from a property slump five years ago continued to weigh on every aspect of economic activity, from its beleaguered banks to high street sales.

Unemployment is also likely to hit another record high of 27.1 per cent during the year, the central bank said, a rise from the current 26 per cent, making it one of the highest rates in the eurozone.