PRAGUE, Oct 29 (Reuters) - The Czech economy expanded slower than expected in the third quarter, showing a recovery losing steam as external demand declined and the global supply crunch hit the car sector. Gross domestic product increased by 1.4% quarter-on-quarter, below a Reuters poll forecast of 1.8%, while the year-on-year growth rate slowed to 2.8%, which was also below expectations and down from an 8.1% rise in the second quarter. The statistics office did not give a breakdown to the preliminary data but said domestic demand was the main driver. The Czech third-quarter GDP data is the first from central Europe, giving the first indications of how a global supply crunch and fast-rising energy costs and inflation are cutting into a rebound and reducing growth forecasts. The region is also again seeing a rise in COVID-19 cases as its vaccination rates remain below western European neighbours. “The outlook for the rest of the year does not bring much optimism,” said Jakub Seidler, chief economist at the Czech Banking Association. “Problems in the supply chain will not improve, and the energy crisis is added to this, which is hitting a number of firms and households. “If we add the worsening pandemic situation, it is clear that growth in the final quarter will not be too shiny.” He said growth of more than 2.5% this year would be a success. The central bank has forecast a 3.5% rise although some central bankers have acknowledged that could be cut. While central Europe’s economies have jumped this year with the easing of COVID-19 restrictions that had previously hammered retail and hospitality sectors - spurring consumer demand - they are facing strong headwinds. The scramble for semiconductors worldwide has slowed the Czech car industry, which is set to produce a quarter of a million fewer vehicles in 2021. Economic bellwether Skoda Auto, the Czech unit of Volkswagen, announced this month it would significantly reduce or halt production for the rest of the year due to the chip shortage. Reporting by Jason Hovet; Editing by Angus MacSwan