The Bank of Spain estimates that the country’s economy contracted by -3.6% in 2009, which would be in line with Government forecasts.

The rate of decline in gross domestic product (GDP) eased in Q4 2009 to -0.1%, compared to a decline of -0.3% in Q3.

A spokesperson for the Bank, said. "GDP declined -3.6% during 2009, the biggest fall in recent decades and in line with the severe contractionary tendencies affecting the world economy in recent quarters, although in Spains case the imbalances accumulated during the preceding expansive phase also contributed to the decline in activity."

Records provided by the Governments Institute of Statistics, which only go back until 1971, showed the previous worse contraction as -1.1% in 1993. In 2008, the economy had grown by +0.9%.

Spain, it appears, is now paying the price for years of running inflation higher than the Euro-zone average and accumulating high levels of private sector debt. With unemployment closing in on 20%, some investors are beginning to fear the country will struggle to cut a budget deficit which reached 11.4% of GDP in 2009.

The Bank of Spain stated that it is vital the Government reforms the pension system and the labour market, whilst Spanish inflation needs to remain lower than the Euro-zone average in order for the country to regain competitiveness.