The Spanish economy will shrink by a further 1.5 percent in 2013, according to the last forecasts published this Tuesday in the Bank of Spain's monthly report.
This probable contraction in Spain's GDP is attributed to the low domestic demand, caused by lower wages, unemployment and increasing prices which have triggered a fall in families' disposable income.
According to the Bank, the fall in the country's GDP's fall will mean unemployment continues to increase in Spain, reaching a peak of 27.1 percent in 2013.
The BOE adds that 2014 will only see a slight improvement in the number of people out of work and Spain will end next year with an unemployment rate of 26.8 percent, which is higher than at the moment.
This finding is more or less in line with the majority of predictions, with the European Union (EU) and the Organization for Economic Co-operation and Development (OECD) having forecast to end this year with 26.9 percent unemployment and 2014 with either 26.6 or 26.8 percent of the working population without a job.
In contrast, the Spanish government prediction looks woefully optimistic, with the government of Mariano Rajoy saying Spain will end this year with an unemployment rate of 24.3 percent and 2014 with the figure at 23.3. Rajoy commented last week these figures may need a 'conservative' revision.
The fall in GDP and the high unemployment rate will affect Spain's ability to reduce its deficit and the BOE believes it will stand at 6 percent of GDP in 2013 and 5.9 percent in 2014 - well above EU targets.
Growth will return to Spain in 2014, the bank says with a timid recovery of 0.6 percent, which is again lower than the expectations of 1.2 percent growth by the government.
The information published on Tuesday appears a day after local media reported the International Monetary Fund (IMF) would confirm in April its 2013 prediction for the Spanish economy. The last IMF prediction expects Spain's economy to contract by 1.5 percent.
The Bank of Spain, also revealed on Tuesday that Spain's non-financial firms saw their profits decrease by 62.3 percent in 2012, compared to the 34.7 percent fall of 2011.
The decrease was caused by losses on the sales of shares and losses of value in financial assets according to the bank, which were partially counterbalanced by cheaper compensations for dismissals thanks to last year's labor reform, which the government continues to insist was passed with the aim of creating jobs.