Spain will start early repayment offinancial aid it received for its banks from other European Union countries in 2012, an attempt to boost confidence in the euro region’s fourth-largest economy.

The government will repay 1.3 billion euros ($1.8 billion) of the 41 billion-euro rescue this year, Deputy Prime Minister Soraya Saenz de Santamaria told reporters today in Madrid after the cabinet approved a growth plan to support the recovery. Measures include a reduction in the Treasury’s net debt issuance and an increase in funding for small and medium-sized enterprises, she said.

Spain’s government forecasts 1.2 percent growth this year after the economy contracted 1.2 percent in 2013. With a quarter of the workforce still jobless, Prime Minister Mariano Rajoyplans to cut taxes next year to increase domestic demand in the run-up to the general election. Rajoy implemented the toughest austerity measures in three decades after taking office in 2011.

Spain’s recovery is continuing in the second three months of 2014 and the country is set to complete a fourth straight quarter of economic growth, the Bank of Spain said on May 28.

Data today showed industrial output rose the most in more than four years in April. Production at factories, refineries and mines, about 16 percent of Spain’s output, increased 4.3 percent from a year earlier.

“The number points to continued growth momentum,” Victor Echevarria, an economist at BNP Paribas SA in London, wrote in a note. “Spanish industrial production will be supported by the euro area and the domestic recovery as Spain capitalizes on the competitiveness gains it achieved in the downturn.”

Under the terms of the banking bailout, a voluntary repayment needs approval by the European Stability Mechanism, the Luxembourg-based institution said in a statement.

To contact the reporter on this story: Angeline Benoit in Madrid at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Craig Stirling at This email address is being protected from spambots. You need JavaScript enabled to view it. Eddie Buckle, Fergal O’Brien

Bloomberg