The Spanish economy contracted 0.5 percent between January and March, compared with the previous quarter, shrinking for the seventh quarter in a row, according to data released by the INE statistics office on Thursday.

However, the pace of decline in Europe's fourth-largest economy appears to have slowed as the contraction in the final quarter of 2012 was even higher at a rate of 0.8 percent.

Nevertheless, the first-quarter contraction had added to a reduction in Spain's gross domestic product (GDP) by 2 percent compared to a year earlier, INE said.

The government of Prime Minister Mariano Rajoy has predicted Spain's GDP will slump 1.3 percent for the whole of 2013, as the country is struggling to overcome rising unemployment and soaring national debt in the wake of a property market crash in 2008.

Despite an entrenched recession, Rajoy's conservative government cut public spending by 1.2 percent in the first quarter and by 4.3 percent year-on-year, apparently aggravating the situation.

As a result, INE data showed slumping private household spending which decreased by 0.4 percent in the first three months of 2013. In addition, imports declined by 1.7 percent on the quarter and 5.1 percent compared with the first quarter a year ago.

On Wednesday, the European Commission gave the debt-laden country two more years to bring its public deficit below the European Union's ceiling of 3 percent. Recognizing Madrid's economic problems, Brussels now expects Spain to cut its deficit to 2.8 percent by 2016, from a current shortfall estimated to come in at 6.3 percent in 2013.

uhe/kms (dpa, AFP)