Unemployment in Spain has been rising sharply
Spain's economy is in recession for the first time since 1993, according to figures from the Spanish central bank.
The Bank of Spain said gross domestic product (GDP) fell 1.1% in the final quarter of 2008, following a 0.2% decline in the third quarter.
The Spanish government has already forecast that the country's GDP will shrink by 1.6% during 2009.
Spain has the worst unemployment rate in the EU, with 13.9% of the workforce out of a job.
The latest labour figures from the Bank of Spain showed that unemployment rose by 3% in the quarter.
The eurozone as a whole entered recession in November.
Real estate bubble
Spain's economy has in recent years been one of the healthiest in Europe, but the global financial crisis and rising unemployment have hit it hard.
The country's reliance on construction means it has also suffered from the collapse of the real estate bubble.
Mortgage lending was down 51% in November, marking the biggest fall in 10 straight months of decline.
"Spain is going through a very sharp correction having grown very rapidly for a decade," said Dr James Nixon, European economist at Societe Generale. "That growth is now being very sharply reversed.
"Although that is very painful now, the fact that the adjustment is so brutal is a reason to be optimistic for the longer term."
Separate data from the car manufacturers' association, Anfac, showed car sales fell 28% in 2008, the largest-ever yearly decline.