Spain's industrial output shrank for the sixth straight month in February and at the second fastest pace in more than two years, fuelling concerns over its stuttering economy which have prompted debt premiums to jump.

Banks and other private sector creditors are demanding ever higher risk premiums to borrow to Spain as the government struggles to generate growth while implementing deep spending cuts to tame one of the highest public deficits in the euro zone.

Spanish calendar-adjusted industrial output fell 5.1 per cent year-on-year in February, data from the National Statistics Institute showed today, just off forecasts for a 5.0 per cent drop and following a 4.3 per cent drop in January.

"Expecting a turnaround before the second half is unrealistic. It's a cyclical downturn and industrial production is a reflection of that. They're probably going to be seeing recession this year and next," economist at Citi, Guillaume Menuet said.

A survey of purchasing managers last week also showed Spanish factory output shrank at the fastest rate since December in March, and the government says Spain slipped in to recession in the first quarter.

Officials expect the economy to shrink 1.7 per cent this year while Citi forecasts a 2.7 per cent drop in activity.

To meet the Brussels-set public deficit goal of 3 per cent of gross domestic product by 2013, Madrid has announced €27 billion in savings by raising taxes and slashing government spending.

Spain's Economy Minister Luis de Guindos said this week the government is are considering making €10 billion of savings by reforming the state healthcare and education sectors, a move that will anger many who consider the welfare state as sacred.

Many Spaniards are resigned to the belt-tightening measures, and protests has been mostly muted, though after four years of economic stagnation and 23 per cent unemployment, the next two years are likely to test the patience of those worse hit.

Reuters