Spain economy shrinks 0.5% in Q1 SPAIN'S economy has shrunk in the first quarter of 2013, official data shows, as a job-destroying recession held its grip on the struggling nation. Weak domestic demand dragged down output in the eurozone's fourth largest economy, which has been shrinking since mid-2011, the National Statistics Institute said on Tuesday. Gross domestic product tumbled by 0.5 per cent on a quarterly basis after a 0.8-per cent drop in the final three months of 2012. On an annual basis, the economy contracted by 2.0 per cent following a 1.9-per cent decline in the previous quarter, the institute said in a preliminary report. The news confirmed that Spain is entrenched in a double-dip recession that sent the unemployment rate soaring to a record 27.16 per cent in the first quarter. "The economy remains mired in recession but at least the pace of contraction appears to be slowing, a mildly encouraging feature," said Nick Stamenkovic, London-based strategist at RIA Capital Markets. We expect signs of recovery to remain elusive until early 2014. Weak demand in the Spanish economy eclipsed relatively healthy exports, the statistics institute said, with retail sales in March plummeting by 8.9 per cent after correcting for seasonal variations. Prime Minister Mariano Rajoy's government is battling to cut Spain's annual public deficit with austerity measures that have prompted mass protests. But his right-leaning government has offered little hope of a solid recovery, forecasting last week a 1.3 per cent contraction in 2013, and only a feeble 0.5-per cent rebound in 2014. The government predicted that the unemployment rate - now the highest since Spain returned to democracy after the death of General Francisco Franco in 1975 - would not fall below 25 per cent until 2016. At the same time, despite biting austerity measures, Spain is struggling to meet European Union targets to curb the public deficit as tax revenues are squeezed by the slowdown and welfare costs rise to cope with a lengthening jobless queue. The government has forecast that the public deficit will amount to 6.3 per cent of gross domestic product in 2013, well above its earlier target of 4.5 per cent. The public deficit will only fall below the EU-agreed ceiling of 3.0 per cent of GDP in 2016, two years later than earlier agreed, it said. A property market crash in 2008 plunged Spain into a recession, destroyed millions of jobs and left banks awash in bad loans. The economy emerged gingerly from that downturn in 2010 before sliding back into recession in mid-2011.