Bank of Spain estimates economy shrank 0.1 pct in 2010

The Bank of Spain estimated Friday that the economy shrank by 0.1 percent in 2010, a better performance than expected by the government after an expansion in the final quarter.

Spain is fighting to revive its economy, Europe’s fifth-largest, and convince nervous investors that it will grow enough to bring its massive public deficit under control without resorting to a Greek or Irish style bailout.

The government signed Wednesday a “grand social pact” on reforms covering pensions and collective bargaining to boost growth and slash an unemployment rate of just over 20 percent, the highest level in the industrialised world.

It had predicted the economy would shrink by 0.3 percent in 2010 after contracting 3.7 percent in the previous year although in recent weeks officials had predicted the decline this year would be limited to 0.2 percent.

“The estimates carried out, based on the available information, show that the recovery continued in the final quarter, with a quarterly increase of 0.2 percent,” the Bank of Spain said in its latest monthly economic bulletin.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a credit-fueled property boom that had been the driver of growth for over a decade.

It emerged with tepid growth of just 0.1 percent in the first quarter and 0.2 percent in the second, but then stalled with zero percent growth in the third.

The government predicts Spain will grow faster than the European Union average as early as 2013.