Madrid - The Spanish economy will shrink 3 per cent this year, the Bank of Spain predicted Friday.

Unemployment will climb from about 14 per cent - already the highest in the European Union - to 17 per cent this year and 19.4 per cent in 2010, the central bank said.

The government had earlier forecast that the economy would shrink 1.6 per cent in 2009, its first contraction in 16 years, and start growing again next year.

The central bank, however, said gross domestic product (GDP) would still shrink by 1 per cent in 2010 and begin to grow only towards the end of the year.

The Spanish economy, which has been hit by the collapse of the country's housing sector and the international crisis, went into a recession late last year. (dpa)