Spain's economy shrank for the first time in 15 years in the last quarter, according to figures released yesterday, confirming the economic gloom gripping the country.

As third-quarter GDP figures from Spain's National Statistics Institute showed a contraction of 0.2 per cent - the first time that the economy has shrunk since 1993 - analysts said that the data confirmed that Spain was heading for recession.

A report by the Organisation for Economic Co-Operation and Development (OECD) added to the bad news, arguing that consumer spending and the once-buoyant construction sector were all but spent forces. The OECD said that the economy would contract by 0.9 per cent in 2009.

It urged Spain's Socialist Government to launch reforms, including matching jobless workers to existing jobs, education and vocational training. Competition in sectors such as transport, postal and professional services must improve, it said.

“The downturn is still at an early stage,” the OECD said. “Nonetheless, it has already resulted in a marked increase in unemployment, hitting workers in low-skill occupations, including immigrants, particularly hard.”

David Vegara, the Economy Secretary, admitted that the country could be entering a prolonged recession. “This cannot be ruled out,” he said. “The Spanish economy will certainly be relatively weak until the middle of next year.”

Miguel Ángel Fernández Ordóñez, the Governor of the Bank of Spain, predicted more grim news to come. “The scenario for the next quarters is very similar to that of the third quarter,” he said.

Although the eurozone area officially entered into recession this week, the forecast for Spain was worse. From being the fastest-growing economy in Europe just over a year ago, it has suffered a collapse in its decade-long building boom and a slump in consumer spending.

With the added pressure of the global financial crisis and the highest level of unemployment in the eurozone - 11.3 per cent - Spain is now more vulnerable than neighbouring economies.

José Luís Martínez, an analyst for Citigroup, said: “The consumer slowdown is faster than expected and also the contraction in investment is worse than expected and points to a faster rate of decline in the fourth quarter.”

The International Monetary Fund predicted that Spain's economy would grow at only 1.4 per cent in 2008, slower than expected, and would shrink by 0.7 per cent next year.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts