The European Commission has warned that Spain needs to accelerate its reform programme and said the country's recession could extend into 2014. Spain and Slovenia were singled out as having "excessive macroeconomic imbalances" in the Commission's in-depth review, published yesterday.

"Although adjustment is taking place, the magnitude of the necessary correction requires continuous strong policy action," read the summary of the report on Spain, presented by EU commissioner Olli Rehn. The document praised efforts by the government of Mariano Rajoy to push through economic reforms, but identified areas where it sees glaring weaknesses.

“However, developments over the last year, including further contraction in economic activity, rising unemployment, and the need for public support for the recapitalisation of a number of banks, have exposed the vulnerabilities represented by those imbalances for growth, employment, public finances and financial stability,” the report says.

The inability of many households to repay debt is a particular area of concern. The review recommended further reforms in several areas, including Spain’s tax system and its labour market, which the government overhauled last year.

The Commission also suggested the “swift completion” of the recapitalisation and restructuring of the banking system, which was thrown into crisis last year by its exposure to the property market.

The report paints a bleak picture for the coming months, forecasting that unemployment will rise slightly to 27 per cent later this year. It also says Spain’s recession could stretch into next year.