SPAIN'S economy shrank at the fastest pace in more than three years in the final quarter of 2012, official data shows, casting a shadow over the prospects of nearly six million unemployed.
Total economic output slumped 0.7 per cent from the previous quarter, the steepest decline since the second quarter of 2009, after a 0.3 per cent dip the previous quarter.
The preliminary report by the National Statistics Institute showed the recession, which started in the final months of 2011, still tightening its grip on the eurozone's fourth-largest economy.
Just days earlier, a separate report showed Spain's unemployment rate shot to 26.02 per cent in the fourth quarter -- the highest level since the re-birth of Spanish democracy after death of General Francisco Franco in 1975 -- as 5.97 million people sought in vain for work.
Raj Badiani, economist at London-based research house IHS Global Insight, predicted another 0.5-per cent decline in gross domestic product in the first quarter of 2013 as households snap their purses shut.
"The outlook for the remainder of 2013 and 2014 is no better," he said in a report.
"The main impediments to any recovery prospects remain the fallout of the ongoing financial crisis hanging over Spain, coupled with still-punishing employment losses lifting the unemployment rate to 26 per cent at the end of 2012, the continued fiscal squeeze, disrupted credit flows and still acute house price falls," Badiani said.
"This casts a considerable shadow over the household economy, suggesting consumer spending, which now accounts for 56 per cent of GDP, will struggle to provide any positive impetus to economic activity in the next two years."
Latest figures also showed that gross domestic product for the whole of 2012 declined by 1.37 per cent, slightly better than the 1.5-per cent contraction predicted by the government.
"Amongst all the bad news, this figure is a bit better than expected," said Gayle Allard, economist at IE Business School.
"I have hope that this was the worst quarter. From here on we will improve. Businesses are doing what they have to do: seeking an exit through foreign markets," Allard added.
"If the government pursues its promised reforms that will also help. In training, in collective bargaining, in unemployment benefits and the duplication of work in the public sector... there is a lot that can be done."
Economy Minister Luis de Guindos said in Davos, Switzerland on Friday that he expected the economy to return to growth in the second half of 2013.
But activity is being curbed by his government's programme of spending cuts and tax rises, aimed at saving 150 billion euros ($A194.77 billion) between 2012 and 2014, prompting mass street protests.
The government has vowed to lower the public deficit from the equivalent of 9.4 per cent of annual gross domestic product in 2011 to 6.3 per cent in 2012, 4.5 per cent in 2013 and 2.8 per cent in 2014.
Analysts say those targets will be hard to reach in a period of declining economic activity.
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