Spain Slashes Economic Growth Forecasts

The Spanish government has forecast that the economy will contract by more than expected in 2013, but will return to growth next near.

The country's deputy prime minister said its gross domestic product (GDP) would shrink by 1.3% in 2013 - down from the 0.5% contraction previously forecast.

But Soraya Saenz de Santamaria said Spain's economy is expected to return to growth of 0.5% in 2014, and will expand by 0.9% in 2015.

At a press conference following the adoption of a new economic plan for the country, she said that no major new reforms, tax hikes and spending cuts were needed to meet the new targets.

The forecasts come a day after protestors took to the streets of Madrid

She added that the government - which had to backtrack from its promise to cut taxes next year - was still aiming to cut some taxes in 2015.

The economy minister, Luis de Guindos, said the deficit-reduction strategy had been agreed with the European Commission and other eurozone officials.

"2014 will be the year of recovery," he said.

The deficit is now forecast to reach 6.3% of GDP in 2013 - well above earlier targets - but would fall to 2.7% by 2016, Mr de Guindos added.

The unemployment rate - which hit a record high of 27.2% in the first quarter of this year - is expected to fall back to 26.7% in 2014, and 25% in 2015.

It comes as protests broke out in Madrid on Wednesday following the release of the latest jobs data.

Around 1,000 people took to the streets in the latest demonstration against the country's austerity measures and tax hikes that have left many without jobs.

The country's economy has been struggling to show signs of recovery since the collapse of its once-booming property market in 2008.

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