The Spanish economy will shrink by 0.2% this year and grow by just 0.9% in 2011

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The Spanish economy will shrink by 0.2% this year and grow by just 0.9% in 2011, according to the latest report by the Organisation for Economic Cooperation and Development.
The blows of the last two years will leave 'lasting' scars.

Such as?

For a start, the unemployment rate is a shocking 20.7% and is unlikely to fall any time soon. That means one in five people who want a job don't have one. In the UK, unemployment is 7.9%.

The country is also heavily in debt and borrowing hit 11% of GDP last year - more than twice the previous year's spending gap.

Will Spain need rescuing?

Perhaps. Greece and Ireland have already been bailed out and attention has now switched to Spain and Portugal. Borrowing costs in Spain are high because nervous investors are worried about lending it money.

The OECD says Spain is tackling the situation through tax rises and spending cuts but this might not be enough.

Why not?

More than half of the deficit is 'structural'. This means the finances will not improve on their own as the economy recovers. The OECD says Spain needs an 'urgent' overhaul of its pension system and employment laws to make it easier for businesses to hire and fire staff.



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