Gross domestic product grew 5% from a historic 10.8% slump the previous year. | Reuters

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Spain's economy expanded at its fastest pace in two decades last year but slowed down in the fourth quarter as public and private spending slipped amid soaring inflation.

Gross domestic product grew 5% from a historic 10.8% slump the previous year, preliminary data from the National Statistics Institute (INE) showed on Friday.

That marked the fastest growth since 2000 but missed the government's 6.5% target.
In September, the INE made an unprecedentedly sharp cut to its first and second quarter growth readings that threw out all forecasts and triggered a wave of downward revisions, but the government stuck to its bullish forecast.

While Spain has so far lagged behind neighbouring France, which posted 7% annual growth after a milder contraction in 2020, it fared better in the fourth quarter, likely due to its light touch approach to the spread of Omicron.

Despite lower spending, an 8.5% jump in investment drove 2% quarter-on-quarter growth in the October-December period, slowing from the 2.6% during the previous three months but comfortably beating a 1.4% forecast from analysts polled by Reuters.

France's economy grew by just 1.7% over the same period.

Agriculture was Spain's fastest expanding sector over the quarter, growing by some 9% as the economically vital autumn grape and olive harvests got underway.

In annual terms, the economy grew 5.2% from the fourth-quarter of 2020, led by a 19.4% leap in the hospitality sector, which has benefited from the widespread rollout of coronavirus vaccines and the lifting of restrictions on socialising.

Social Security Minister Jose Luis Escriva said a delayed recovery in tourism, which accounted for some 12% of GDP before the pandemic, was still holding back growth but he pointed to solid jobs data as a reason for optimism.

Unemployment is at its lowest level since before the financial crisis while job creation was at its fastest since 2005 last year, helping drive record tax collection.

Bolstered by the arrival of more European Union recovery funds and an expansive budget, the government expects 7% growth this year, although the central bank forecasts a more modest 5.4% expansion.