Spain's economy experienced a contraction of 1.3 percent in 2012, according to data released on Wednesday by the Bank of Spain.

The Bank of Spain attributed this contraction to several factors. The domestic demand contracted by 3.9 percent, especially in the industry and construction sector, adding a decline in investment and consumption.

Household consumption significantly decreased due to the rise on sales tax, unemployment and reduced salaries which have undermined families' purchasing power.

This is also caused by a "financial context of high tension, fiscal consolidation, deleveraging process of the private sector and a steadily declining employment", whose rate would reach 26 percent, said the Bank.

This rate would be confirmed by the National Institute of Statistics (INE) next Thursday when new data about unemployment in the country will be published.

The Bank of Spain pointed out that employment fell by 4.3 percent while highlighting a faster decline in comparison with 2011. The reduction of public employment, said the Bank, was one of the main reasons of this decline.

The entity also noticed the effort made by the Spanish Public Administration to reduce the budget deficit to 6.3 of GDP in 2012, a goal that the European Commission said on Tuesday Spain would probably miss.

The Spanish entity, however, felt confident that last measures would kick in at the end of the year, causing a "substantial adjustment in the deficit."

Nevertheless, the Bank of Spain warned 2013 deficit target of 4.5 percent would require additional measures and big efforts.