July 24 (Bloomberg) -- Spain’s unemployment rate rose to 17.9 percent in the second quarter, more than twice the European Union average and the most in a decade, as companies cut payrolls to weather the deepest recession since World War II.

The number of unemployed jumped by 126,700 to 4.14 million people from the previous three months, the Madrid-based National Statistics Institute said today in an e-mailed statement. From a year earlier, 1.76 million people lost their jobs and the number of households with no one employed doubled to 9 percent.

Spain accounts for more than half of the past year’s rise in euro-region unemployment. The economy, suffering from the crash of its once-booming housing market, has more people out of work than Germany, which has twice its population. The European Commission expects the recession to drag on longer in Spain than elsewhere, pushing the jobless rate to 20.5 percent next year.

“The worst is probably passed after this second-quarter data in terms of the rate of increase,” said Dominic Bryant, an economist at BNP Paribas in London. He forecasts unemployment will peak at 22 percent in late 2010 and 2012 is “the earliest you could hope to see a marked improvement.”

Higher Forecast

The government forecast in June that unemployment would be 17.9 percent this year and peak at 18.9 percent in 2010. Today’s figure was lower than the median forecast of 18.7 percent in a survey of nine economists by Bloomberg News.

“I’m a bit flabbergasted by the small rise in unemployment,” Martin van Vliet, an economist at ING Bank in Amsterdam, said. “I still fear this will turn out to be a temporary breather, largely reflecting the impact of government stimulus” and the jobless rate “will breach 20 percent within the next 12 months.”

ArcelorMittal, the world’s largest steelmaker, said on June 3 that it may cut working hours at its Spanish unit by as much as 40 percent, idling part of the workforce for the rest of the year. Mecalux SA, Spain’s largest maker of warehouse equipment, said in May it was reducing the working hours of almost 1,000 employees and Nicolas Correa SA, a milling-machine maker, also announced job cuts on July 20.

Almost 30 percent of all unemployed people in the euro area live in Spain, Eurostat says. In some regions, such as Andalusia and the Canary Islands, the jobless rate now exceeds 25 percent, today’s data showed. A majority of Spaniards say their country’s biggest problem is unemployment, according to a poll by the state-run Center for Sociological Research.

Political Fallout

The crisis has had a political price. Prime Minister Jose Luis Rodriguez Zapatero’s Socialist Party, reelected last year on pledges of full employment, lost June’s European elections as the opposition People’s Party won 42 percent of the vote.

Spain, riding the wave of a construction boom, created about half the new jobs in the euro region in the five years through 2006. Still, at the height of the boom, about a third of all job contracts were temporary, the most in the 30 countries of the Organization for Economic Cooperation and Development, making it easier for workers to be let go as the crisis hit.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Last Updated: July 24, 2009 05:02 EDT