The 2014 budget presented Friday by the Spanish government assumes that GDP will grow 0.7 percent next year, bringing the unemployment rate down to 25.9 percent.

After the Cabinet approved the package, Deputy Prime Minister Soraya Saenz de Santamaria said it was based on growth estimates that are "prudent and conservative" and expectations that the labor market will stabilize in 2014 and jobs will begin to be created in the second half of next year.

The Spanish government projects an economic contraction of 1.3 percent for this year, but expects the country to emerge from recession with 0.7 percent GDP growth in 2014 due to greater investment and household consumption.

Weak domestic demand, however, will continue to be a drag on the economy and shave 0.4 percentage points off GDP growth.

The export sector, meanwhile, is expected to contribute 1.2 percentage points to GDP growth in 2014. Spain's exports and imports will climb by 5.5 percent and 2.4 percent, respectively, according to the government's projections.

Spain, which posted its first monthly trade surplus on record in March, expects to record annual trade surpluses of 2.3 percent of gross domestic product this year and 3.4 percent of GDP in 2014.

The government projects that the economy will stop shedding jobs in the second half of 2014 and that net job creation can be achieved with annual GDP growth of less than 1 percent.

The Spanish economy remains hampered by the fallout from the collapse of a long-building housing bubble, which left many of its banks saddled with toxic assets. EFE