By Paul Day
MADRID (Reuters) - Spain's economy looks on the verge of exiting recession, though data showed the slump will have lasted three months longer than previously thought.
Gross domestic product contracted 0.1 percent in the second quarter from a quarter earlier, the National Statistics Institute (INE) said, in line with forecasts and a preliminary reading.
But in the third and fourth quarters it should stabilize or grow by up to 0.2 percent, Economy Secretary Fernando Jimenez Latorre said following the data, enabling it to meet an official end-of-year target of a 1.3 percent contraction.
"We believe there's been an important turnaround in the economic cycle and that the bases are there to continue this new trend and this will show growth, finally ending the long and deep recession," Latorre said.
Spanish exports are recovering but domestic demand has remained weak, contributing to a slowing of consumer inflation, which separate data showed hit a four-month low of 1.5 percent in August.
The 0.1 percent drop in output was the smallest since the second quarter of 2011 when the economy started to contract.
INE revised its quarterly growth data back to the beginning of 2009. The earlier figures had pegged the beginning of the slump to the third quarter of 2011.
Spain has been in and out of recession since a decade-long property bubble burst in 2008 and, with unemployment at around 27 percent, is expected to remain in an economic slump for at least another year.
Although better-than-expected growth figures from its European neighbors, including Germany, Britain and France, which alone account for over a third of Spain's total exports, could help it emerge from recession before the end of the year, recovery is expected to be gradual.
"Much of what we're seeing in the first and second quarters has been distorted by Easter falling in March this year after April last year. We can see that Spain is slowly on the mend, but it's going to take years and recovery will be very sluggish," said economist at Jefferies David Owen.
On an annual basis, second quarter GDP shrank 1.6 percent after a drop of 2 percent January to March, INE said, better than a Reuters forecast and preliminary reading of a 1.7 percent contraction.
(Additional reporting by Manuel Ruiz; Editing by Julien Toyer, John Stonestreet)