The Bank of Spain on Wednesday morning published its January "Economic Bulletin," in which it forecast an 0.6 per cent contraction in the country's economy during the fourth quarter of 2012 which, if confirmed, would entail a fall of 1.7 per cent in its year-on-year rate of growth.

The Spanish economy began contracting in the fourth quarter of 2011 although government officials have said that this year its gross domestic product (GDP) should begin to stabilize, with growth expected to return in 2014.

The country's central bank expects 2012 as a whole to see a decline of 1.3% in GDP against what it defines as "a financial backdrop of high tension, fiscal consolidation, private-sector de-leveraging and the ongoing reduction in employment."

The Bank of Spain also notes that for Spain to achieve its deficit target of 4.5% for 2013 it would require "a further and very ambitious fiscal effort both on the part of central government and the regional governments".

Just yesterday the European Commission admitted that it was unlikely that Spain would attain its deficit target of 6.3% for 2012.

JM

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