Spain has officially joined the list of nations in recession. Spanish gross domestic product contracted 1.1 percent  in the fourth quarter according to Bank of Spain estimates in its January monthly report.

The Bank of Spain predicts the unemployment rate, already the highest in the 27-nation European Union, will rise to 15.9 percent in 2009. Many analysts fear that further rises in unemployment can stir social tensions.

Last month the International Monetary Fund warned the Spanish economy, risks entering an extended period of stagnation unless sweeping structural reforms are carried out.

One of the main growth engines of Spain’s economy in recent years has been its construction sector. Given the collapse of the real estate bubble, Spain has suffered severely and is now going into reverse.

The Bank of Spain on the other hand attributes the 2008 deceleration to the decrease in consumer spending, ontop of what weight the housing sector may have had. Wishful thinking?

As the announcement of Spain’s recession sinks in, the opposition party leader Mariano Rajoy (PP) emerges with a direct confrontation, claiming that the recession is a clear sign that “the government is incompetent” in its efforts to face the crisis.

Image by rgarcia under Creative Commons.