By Sonya Dowsett
MADRID, Mar 5 (Reuters) - Output at Spanish factories and mines dived 20.2 percent in January from a year earlier, following December's revised record 20.2 percent decline, as credit-starved consumers and businesses slashed spending.
The steep fall in industrial production announced by the National Statistics Institute on Thursday will have a knock-on effect on other areas of the economy, boding ill for Spain which entered recession in the third quarter of 2008 and is saddled with the highest unemployment rate in the European Union.
"This will have a feedback effect on other elements like unemployment (and) demand, so the immediate future remains extremely bleak for Spain," said Stephane Deo of UBS.
However, the severe rates of decline in output may moderate from now on, he said, after two months in a row of the steepest falls since records began 15 years ago.
"We're probably past the inflexion point," he said.
Production of cars slumped 54.4 percent from January last year, the National Statistics Institute said, and furniture production dropped 38.1 percent, reflecting stunted consumer spending and the abrupt end of a decade-long housing boom.
Spain's second-largest bank BBVA predicted on Tuesday Spain's economy would contract by 2.8 percent in 2009, the biggest fall in output since Spain's 1936-1939 Civil War.
Meanwhile, rating agency Standard & Poor's cut the ratings of four Spanish banks on Wednesday in response to the sinking real estate market and rising rates of loan defaults.
Industrial output has tumbled across Europe as the euro zone economy sinks into a deep recession, exacerbated by severe restrictions on lending, acting to choke domestic and corporate demand.
The European Central Bank was expected to cut interest rates to an all-time low later on Thursday and slash its 2009 and 2010 economic forecasts to reflect the rapid pace of deterioration in the region. [ECB/INT] (Additional reporting by Andrew Hay and Manuel Maria Ruiz; Editing by Ruth Pitchford)