The government said Spain's economy, the eurozone's fourth-biggest, would shrink by 1.3 percent in 2013 and timidly return to growth of 0.5 percent in 2014.
But it admitted it would likely take until 2016 to bring the country's public deficit — a crucial measure of financial stability — under the European Union's three-percent limit.
Unemployment will slide to 26.7 percent over 2014 and ease back further to 25 percent in 2015, the government added, announcing the latest crisis reforms it will send to Brussels for approval.
It forecast the public deficit would be 6.3 percent of gross domestic product (GDP) in 2013 — well above its earlier target of 4.5 percent.
The deficit would ease to 2.7 percent by 2016, it said — pushing back by two years the target it had earlier agreed with European authorities to bring it within the three-percent limit.
The 2013 growth figure, sharply down from an earlier estimate of a 0.5 contraction, reflected the ongoing damage from the collapse of a building boom in 2008 that thrust Spain into a deep double recession.
"In 2013 the worst quarter will be the first quarter, and from there the data will improve," Finance Minister Luis de Guindos told a news conference.
"The year 2014 is the year of recovery. We will reap the fruit of our economic policies."
Meanwhile the public debt would climb to 91.4 percent of GDP in 2013 and reach 99.8 percent by 2016, he said.
The government is fighting to stabilize Spain's public finances through austere economic cuts that have sparked angry street protests.
Prime Minister Mariano Rajoy says these are needed to curb the public deficit and help the country save €150 billion ($195 billion) by 2014.
Friday's new "stability plan" contained new structural reforms, but no major measures on the scale of the tax hikes and budget cuts announced last year.
It included measures to streamline the public administration and boost small business.
Deputy Prime Minister Soraya Saenz de Santamaria said the latest reforms contained no new rises in income tax or sales tax, though the government plans a new environmental tax.
The latest official unemployment figures on Thursday showed that Spain's jobless rate surged past 27 percent in the first quarter of this year.
Rising unemployment has caused evictions to soar and forced tens of thousands of people to leave in search of work abroad.
Hundreds of people rallied outside parliament in central Madrid late on Thursday in the latest of two years of street protests in anger at the crisis.
Authorities said 29 people were injured and 15 arrested.