By Jesús Aguado and Emma Pinedo

MADRID (Reuters) – Spain’s economy grew in the third quarter at a pace similar to the previous one thanks to solid domestic demand and looser COVID-19 restrictions, the Bank of Spain said on Tuesday, raising its forecasts for 2021 and the next two years.

Oscar Arce (the Bank of Spain’s chief economist) said at a press conference that gross domestic product will grow by 2.7% this quarter. It had risen 2.8% between April and June. The Bank of Spain believes the economy is facing short-term difficulties, which was evident in sales of cars and other retail items.

The central bank predicts that gross domestic product will grow 6.3% by 2021 after a 10.8% slump in 2016. This is an increase from the 6.2% prediction in June.

Nadia Calvino, Economy Minister, stated that the GDP would likely recover to pre-pandemic levels before the year ends. She also maintained her previous growth forecasts.

Calvino reiterated that 6.5% of the 2021 economic growth target was met and that 7% of the 2022 targets were achieved. Calvino also indicated that it is likely that the GDP in 2022’s first quarter will be greater than the one in 2019.

According to Calvino, the central bank raised its expectations to 5.9% next year from 5.8%. They also forecast 2.0% in 2023 and 1.8% for 2023. This is because the central bank expects that Spain’s economy will return to pre-pandemic levels by 2022 instead of the end.

While the bank pointed out that fiscal and monetary policies continue to be supported, it also anticipates that there will be a decline in public debt and the introduction of European funds.

The central bank stated that the recent Spanish inflation rise was temporary, and will slow down over the coming quarters.

Although the central bank said that it did not exclude the possibility of additional price rises in the future, which could have a longer-lasting effect and trigger second round effects. The inflation is forecast to hit its highest point in November.

According to the Bank of Spain, it expects Spain’s EU harmonized consumer inflation in 2020 to reach 2.1%. This is a rise from 1.9% in June and 1.3% in 2023.