Spain's economy grew by a small amount in the first quarter of the year, with stronger European recovery countering the effect of sluggish domestic demand and austerity measures, the central bank said in a monthly report on Friday.

Spain must assure markets it is capable of stimulating a weak economy to grow at a decent rate to help meet its tough deficit forecasts for the year. But the year got off to a weak start, chiming with earlier data showing a fall in industrial output in March on weak domestic demand.

The Bank of Spain said the economy would grow by 0.2 percent in the first quarter of the year on a quarterly basis, the same as the last three months of 2010. On an annual basis the usually accurate forecasts from the central bank estimated the economy would grow by 0.7 percent.

However, the central bank, which forecasts growth this year of just 0.8 percent, said the 2011 deficit target of 6 percent of GDP should still be met.

The Spanish economy kept growing at a weak rate in the first months of 2011, in an environment of a gradual global recovery, the report said.

The estimate was the result of a negative contribution from domestic demand, and the positive contribution from exports, which was again the main source of growth.

The quarterly growth rate estimated by the bank is in line with the consensus forecast for the official data for the first three months of the year, due on May 13.

I am not surprised to hear that net exports were the main contributor to GDP whereas domestic demand kept weighing on growth. That's the message coming from business surveys and hard data throughout the quarter, said Tullia Bucco at UniCredit.

(Reporting by Nigel Davies; Editing by Toby Chopra)