The Bank of Spain said that Spain faced a deep recession until 2011 with unemployment rising over 19% in 2010 as the economy reels from the double blows of the global crisis and a construction boom collapse.

Bank of Spain said in its monthly report that Spain's economy will shrink 3% in 2009, nearly twice the slump forecast by the government, marking its worst recession since the country’s 1936-39 Civil War. It added that economy will contract a further 1% in 2010. A combination of lower tax income and hefty emergency spending will send Spain’s public sector deficit to 8.3% of GDP in 2009 and 8.7% in 2010, more than double the 3.8% shortfall of 2008.

Mr Miguel Angel Fernandez Ordonez governor of Bank of Spain said that "The Spanish economy is immersed in a period of deep contraction where the unemployment rate, unless measures are taken, will rise to a very worrying level."

Mr Jose Luis Zapatero Prime Minister of Spain forecasts the recession would bottom out in the second half of this year but the Bank of Spain said the economy would not return to growth until at least late 2010.

The Bank of Spain said that there was a high degree of uncertainty to its forecasts, with upside and downside risks, based on the duration of financial turmoil and the impact of a fiscal stimulus package worth nearly 5% of GDP. It added that "The rapid deterioration in the deficit and public debt shows the importance of adopting budget consolidation plans to redirect public finances towards stability."

(Sourced from www.reuters.com)