Spain’s economy contracted in the fourth quarter and will shrink 1.5 percent this year, the Bank of Spain estimated, undermining government efforts to cut the budget deficit amid the second recession in two years. Gross domestic product fell 0.3 percent in the quarter, the most in two years, and grew 0.3 percent from a year earlier, the Madrid-based Bank of Spain said today in its monthly bulletin. Economic output may decline this year as unemployment reaches 23.4 percent, returning to growth of 0.2 percent in 2013, the central bank said. The forecasts are based on the premise that the government will adopt additional austerity measures to meet its budget goals “strictly.” Spain’s new government, in power since Dec. 21, is aiming to reduce the budget deficit by about half this year even as the economy slumps. Spain is already in a recession, Budget Minister Cristobal Montoro said on Jan. 18. Credit is shrinking at a record pace and the country has the highest unemployment in the European Union at 22.9 percent. “It’s going to be very difficult to meet the target but it all depends on what measures the government takes,” Jose Luis Martinez, a strategist for Spain at Citigroup Inc. in Madrid, said in a telephone interview. “The important thing is that brave steps are taken to allow for a stronger recovery.”
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