Spanish Prime Minister Mariano Rajoy warned Friday of a "very tough" year ahead for the recession-struck economy but said he hoped for an improvement in the second half of 2013.
"We still have a very tough year ahead, especially in the first half, and we have to persevere in the reforms we have embarked on," Rajoy told a news conference.
"The economy will continue in recession for some time although we hope it will start to improve in the second half of the year ahead."
The Spanish leader spoke to the media after the last cabinet meeting of 2012, a year of sweeping austerity measures, towering unemployment and recession that have sparked mass demonstrations.
Rajoy´s right-leaning government has approved a 2013 budget with 39 billion euros ($51 billion) in austerity measures as it seeks to slash the public deficit to 3.0 percent of economic output by 2014 from 9.4 percent last year.
The Spanish economy has been shrinking since mid-2011, driving up the unemployment rate to 25 percent, the highest since the return to democracy after the death in 1975 of General Francisco Franco.
At the same time, the Popular Party government is shaking up the banking sector with financial help from the eurozone and has pushed through drastic changes to the labour market.
Rajoy defended his economic policy.
"Although we cannot all see it, this policy is already bearing fruit," Rajoy said, claiming results in the economy, improving confidence and recognition by Spain´s eurozone allies and the international financial markets.
Spain's gross domestic product, its total economic output, fell by 0.3 percent in the third quarter of the year, according to official data.
The government is tipping an economic slump of 1.5 percent this year.
It also forecasts a 0.5-percent contraction in 2013, but this is widely viewed as being optimistic. The European Commission and OECD, for example, say they expect Spanish economic output to tumble 1.4 percent next year.