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Spain, Europe’s fifth-largest economy, is stuck in a deepening recession. The large deficit, high unemployment rate and a collapsed housing market have been keeping the economy and related ETF depressed.

Spain’s government stated that it would reduce spending by almost $70 billion to help ease its budget deficit back down to 3% of GDP by 2013 from 11.4% last year, report Andres Cala and Matthew Saltmarsh for The New York Times. The government has already promised to increase taxes to bring down the large deficit.

The government forecasts a 0.3% contraction for 2010. The International Monetary Fund believes Spain may be the only country in the Eurozone to remain in recession this year, with a projected contraction of 0.6% in 2010, followed by a 0.9% expansion in 2011.

Spain’s National Statistics Institute (NSI) calculated that unemployment ended up at 18.8% in the fourth quarter, up from 17.9% in the previous quarter. The NSI reported that more than 4 million people were out of work at the end of December, up 1 million year-over-year, according to MSN News. Finance Minister Elena Salgado raised 2010 employment estimates to 19%.

The government is also deliberating over the possibility of raising the official retirement age from 65 to 67 to help its social security system adapt to the rapidly aging population.

Marc Chandler, strategist at Brown Brothers Harriman, says unemployment among Spain’s youth stands at 40%, writes Joe Weisenthal for Business Insider.

  • iShares MSCI Spain Index (NYSEArca: EWP)

Max Chen contributed to this article.

Source: Spain ETF Has a Few Issues to Tackle