The Spanish economy shrank by 0.3pc between July and September, marking the fifth consecutive quarter of contraction.
Spain is buckling under the pressure of a large deficit and a property crash that has left its banks struggling under a mountain of bad loans.
Swingeing spending cuts and tax rises have stifled investment and have left consumers without the money or the will to spend.
The third-quarter data from Spain’s national statistics office was a first estimate of GDP with no detailed breakdown. Despite the decline, it reflected a slightly better performance than the 0.4pc fall in GDP economists had predicted.
However, economists said the figure was likely to have been flattered by consumers bringing forward purchases to beat the VAT rise in September, partly veiling a weak consumer backdrop.
“Domestic demand likely contracted sharply again, despite some spending being pulled forward ahead of the VAT hike,” said Greg Fuzesi, economist at JP Morgan. “Our forecast anticipates an intensification of the Spanish recession at the turn of the year.”
Spain’s Prime Minister, Mariano Rajoy, has so far refused to seek a full-blown sovereign bail-out from its eurozone partners, despite a feeling among investors and policymakers that it is inevitable.
It emerged on Tuesday that Spain’s parliament will invite Mario Draghi, the head of the European Central Bank, to discuss details of a proposed bond-buying programme to help ease the country’s debt problems.