Food prices rose significantly in July
The Spanish government has approved a 20bn euro ($30bn, £15bn) stimulus plan to tackle the cooling economy.
Prime Minister Jose Luis Rodriguez Zapatero interrupted his holidays for a meeting with economy minister Pedro Solbes and other cabinet members.
The plan, yet to be finalised, includes a 20m-euro ($30m; £15.9m) package to help families access mortgage finance.
The government has admitted that 2008 and 2009 will be tough, with Span's GDP growth rate slowing sharply.
But it said Spain should return to GDP growth of about 3% starting in 2010.
On Thursday Spain's National Statistics Institute said the economy expanded by just 0.1% in the second quarter, compared with 0.3% in the first three months of the year.
Compared with the second quarter in 2007 Spain's economy had grown by 1.8%, down from the year-on-year growth rate of 2.7% in the first quarter. Last year, Spain's economy grew by 3.8%.
The economic measures approved also include proposals to cut red tape to make Spanish firms more competitive.
There will also be reforms in the housing, transport and telecommunications sectors.
The core of the 20bn-euro economic stimulus package has been a 400 euros rebate for 16 million workers and retired workers in the hope this would boost consumption.
Further measures are designed to help the construction industry by awarding more money to construct subsidised housing.
On Wednesday, figures showed prices in Spain rose at their fastest annual rate for 15 years in July, driven by rising food and fuel costs. The annual inflation rate climbed to 5.3% in July, up from 5% in June.
Transport costs were 10.6% higher than a year earlier, the National Institute of Statistics said, with food prices up 7% compared with July 2007.
Spanish inflation is above the eurozone average of 4.1%, but Spain's Economy Minister Pedro Solbes said the rate of inflation could drop to about 4% by the end of the year as oil prices decline.