The Spanish economy will contract 3 per cent this year and the jobless rate will climb to 17.1 percent according to the Bank of Spain’s latest report released on Friday.

Bank of Spain: Gloomy economic forecastsJobless will surge to 19.4% in 2010

Spain currnetly has the biggest unemployment rate out of the European Union, in February standing at 15.5%, practically twice that of the EU average.

Economy to shrink by up to 3 per cent

The Banco de España’s prediction of the Spanish economy shrinking by 3 per cent this year, is practically double the drop of 1.6 percent forecast by the Spanish government.

Rising public deficit

The bank of Spain also predicted that the public sector deficit would rise to 8.3 percent of gross domestic product this year and 8.7 percent in 2010 as the government spent more money on unemployment benefits and public works programs and collected less in taxes.

The Bank of Spain said there was a high degree of uncertainty to its forecasts, with upside and downside risks, based on the duration of financial turmoil and the impact of a fiscal stimulus package worth nearly 5 percent of GDP.

The Spanish economy entered into its first recession in 15 years at the end of 2008.

Image by gilad_rom under Creative Commons.