On Tuesday, the international investment bank Morgan Stanley (NYSE:MS) warned "a momentous economic slowdown is now underway" in Spain, predicting "the bulk of the pain will be suffered in 2009," The Daily Telegraph reported Tuesday.

Grim economic data has come like flash flood, Spain's finance minister said.

The consumer confidence index in Spain fell to a record low 46.3 in July and construction layoffs have mounted, raising unemployment to 10.4 percent, the report said.

"We thought it would happen slowly but instead it has hit fast," Finance Minister Pedro Solbes said.

Similar to other nations, rising energy costs and a housing bubble has combined to disrupt credit and spur inflation.

"What was the state supposed to do? Stop people building houses?" Solbes asked.

The Morgan Stanley report said there was 40 percent chance the Spanish economy would enter bear territory -- 20 percent below its previous peak -- and the economy would contract by 0.5 percent in 2009, the Telegraph reported.