Spain's economy contracted at an alarming pace in the final quarter of 2012, the statistics institute INA reported on Wednesday.

Total economic output shrank by 0.7 percent between October and December of last year, marking the steepest decline since the second quarter of 2009. The latest figures showed that the eurozone's fourth-largest economy was still facing an uphill battle to leave recession behind.

Consumption and industrial activity continued to be curbed by Madrid's austerity program of spending cuts and tax hikes, aimed at saving 150 billion euros ($194 billion) between 2012 and 2014.

INA figures showed that gross domestic product (GDP) in Spain for the whole of 2012 declined by 1.37 percent and thus less than the 1.5 percent predicted by the government.

The latest statistical data came as bad news for the close to six million people currently out of work in the country. A separate report had shown that the unemployment rate shot to over 26 percent in the fourth quarter of 2012.

Improvement in sight?

Economics Minister Luis de Guindos made a point of stressing that he expected the national economy to return to positive territory in the second half of the current year.

Despite Spanish worries, the eurozone economy as a whole entered the new year on a positive note with a key economic sentiment survey released Wednesday posting a bigger-than-forecasted gain in January.

The European Commission said its closely watched Economic Sentiment Indicator (ESI) climbed for the third consecutive month to 89.2 points in January from 87.8 points in December.

hg/hc (AFP, dpa)