Spanish Economy Minister is satisfied the GDP is contracting at a slower pace and expects things to pick up in the next quarter.

Spain's economy contracted in the third quarter, although at a slower pace than in previous quarters, official data showed Thursday, contrasting with a return to growth elsewhere in Europe.

Gross domestic product declined 0.3 percent from the previous quarter, its fifth straight quarterly contraction, and was down 4.0 percent from a year earlier, the National Statistics Institute said in preliminary figures.

It follows a contraction of 1.1 percent in the second quarter, 1.6 percent in the first quarter, 1.1 percent in the three months to December and 0.6 percent in the third quarter of 2008.

The statistics office said the slowdown in the pace of economic contraction was due to "a less negative contribution of domestic demand and a positive contribution of exterior demand" as government stimulus measures helped smooth the decline in activity and a return to growth in other nations aided exports.

Economy Minister Elena Salgado said she was "satisfied" with the figures.

"We expect that the results of the next quarters with our predictions and they will be better," she told reporters as she entered parliament.

The government expects the economy, Europe's fifth largest, to shrink 3.6 percent this year and return to growth by the second half of 2010.

The latest quarterly results leave Spain, along with Britain which unexpectedly slumped 0.4 percent in the third quarter, as the only large European economies still stuck in recession, usually defined as a drop in GDP for two or more consecutive quarters.

The European Commission forecasts the entire 16 member eurozone likely expanded during the third quarter.

Eurozone heavyweights France and Germany will publish third quarter GDP data on Friday. Both nations posted surprise economic growth in the second quarter of 2009, meaning their recessions were technically over.

The Spanish economy has proved especially vulnerable to the global credit crunch because its growth relied heavily on credit-fuelled domestic demand and a Spanish property boom boosted by easy access to loans that has collapsed, leaving around one million new homes unsold.

Prime Minister Jose Luis Rodriguez Zapatero's Socialist government has responded to the economic slump by putting in place a stimulus plan worth more than two percent of GDP this year which it says is the largest in Europe.

The plan includes a massive works programme, which has torn up vast swatches of Spanish cities as workers extend or repair roads and pavements. That however failed to prevent the jobless rate from soaring.

Spain's unemployment rate has doubled over the past two years to hit nearly 18 percent, the highest level in Europe, with construction workers leading the job losses.

The country of just over 46 million people accounts for roughly half of the rise in the number of jobless in the euro zone over the last year, according to the European Union's statistics office Eurostat.

At the height of its 15-year boom, Spain was creating about half of all new jobs in the eurozone, which drew millions of immigrants, especially from Latin America and Eastern Europe.

The sharp economic slowdown has caused Spain's public deficit to balloon as tax receipts fall and government spending on stimulus measures and unemployment benefits soars.

The government, which posted budget surpluses between 2004 and 2007, predicts the budget deficit will hit 9.5 percent of GDP this year.

The European Commission on Thursday gave Spain an additional year -- until 2013 -- to bring its budget deficits back under the European Union limit of 3.0 percent of GDP.