Spain releases dismal economic forecast for 2009

The Cabinet approved a new official forecast that said Spain's central and regional governments together will run a deficit equivalent to 7.9 percent of gross domestic product in 2010, more than double the 3 percent target set by the European Union. For this year the forecast so far had been 5.8 percent of economic output.

As of the end of the first quarter, Spain's unemployment rate stood at 17.4 percent, the highest in the European Union.

Now the government says that by the end of the year it will go up to 17.9 percent and hit 18.9 percent next year.

Spain's once-buoyant economy slipped late last year into a technical recession — typically defined as two consecutive quarters of economic contraction — after the collapse of a decade-long boom fueled by real estate construction and consumer spending.

As recently as 2007, it posted GDP growth of 3.8 percent.

But the construction industry was hit hard by sharply higher interest rates on mortgages and a credit crunch in which banks, spooked by financial turmoil abroad, abruptly ended what had been lavishly easy lending practices. Spain now has a glut of 600,000 unsold homes.

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