Spain is fending off fears in international financial markets that its public deficit is unsustainably high and could prompt the country to follow Greece and Ireland into seeking an EU-IMF bailout.

The government has based its target of slashing the public deficit to below the European Union limit of 3.0 percent of annual economic output by 2013 on a forecast of growth of 1.3 percent this year and 2.5 percent in 2012.

The Spanish economy, Europe's fifth largest, contracted by 0.1 percent in 2010 after shrinking 3.7 percent in the previous year after the collapse of a property boom that lasted more than a decade.

Spain along with Greece and Ireland were the only eurozone economies to shrink in 2010.