MADRID (Reuters – Spain’s third quarter economic growth was slower than predicted, preliminary data on Friday showed. The findings raise concerns about Spain’s ability to recover from a difficult second quarter as well as the possibility of rising inflation.

The National Statistics Institute (INE), flash data showed that gross domestic product increased by 2% from the previous quarter and 2.7% in comparison to the same time in 2020. Reuters polled economists to forecast a 2.7% quarter on quarter expansion and a 3.5% increase annually.

Importantly, the quarter-on-quarter decline in private spending was 0.5%. However, Spaniards retained savings they had built up during a year of moderate consumption.

The hospitality and retail industries saw strong summer growth, but key sectors like real estate and financial services experienced slowdowns.

Spain’s most recent COVID-19 infection wave was still a problem at the beginning of quarter. It has since been remediated through extensive vaccination.

Statistics in national are still affected by strict lockdowns imposed during the second quarter of 2020.

In September, the INE lowered its second quarter growth to 1.1%. That’s less than half the initial estimation. The central bank announced that they would be lowering their 2021 predictions significantly.

Inflation has risen to a near 30-year high due to soaring energy cost, casting doubt on Spain’s speedy recovery from last year’s 10.8% slump.

The government is sticking to its bullish forecasts for GDP growth returning to pre-pandemic levels by year’s end. It expects 6.5% annual growth by 2021 and then a higher of 7% by 2022.

There are reasons to be optimistic, based on the buoyant third-quarter job data that was published Thursday. It showed Spain exceeding 20 million employees for first time since 2008.