Spain slipped back into recession in the last quarter of 2011 and the recession will become deeper during the current year with only a slight recovery in 2013, the Bank of Spain (BOE) said Monday.

The BOE calculated that the Spanish economy shrank by 0.3 percent in the last three months of 2011 and although it grew by 0.7 percent for the whole of 2011, the trend set in the last three months of the year is that which looks likely to continue.

"The more difficult situation since last summer, the tensions in the financial markets in the eurozone and the lack of confidence in the private agencies and the tougher financial conditions have negatively affected the perspectives for economic growth," warned the bank in its report, adding "For this reason we calculate that the Spanish economy contracted by 0.3 percent in the fourth quarter of 2011."

"With this profile, the macro-economic projections in this report, contemplate a substantial fall of GNP in the Spanish economy in 2012 and a modest recovery in 2013," said the BOE, which expected the economy to shrink by 1.5 percent in 2012 and grow by just 0.2 percent in 2013.

The BOE added that private spending would be affected by the policies of fiscal control currently being implemented by the government of Mariano Rajoy.

"There will be a significant reduction in internal demand," advised the Bank, which also demanded a reform in the labor market to avoid a further rise in unemployment from its current level of just under five million in Spain.

The BOE warned that without further help for the labor market, unemployment could rise by a further three percent during the year with jobs disappearing at the same rate as in early 2010 when over 100,000 jobs were disappearing every month.

Xinhua