April 24 (Bloomberg) -- Spain’s unemployment rate rose to 17.4 percent in the first quarter, more than double the European Union average, as the global recession ravages an economy that was once one of the region’s strongest performers.

The number of unemployed jumped by 802,800 to 4.01 million, more even than in Germany, which has twice Spain’s population. It was the biggest quarterly increase in unemployment since the National Statistics Institute began the survey in 1976. The jobless rate rose from 13.9 percent in the fourth quarter.

Spain is at the forefront of Europe’s economic crisis and accounts for more than half the increase in euro-region joblessness. The collapse of the country’s housing boom, which allowed economic growth to outpace the EU for more than a decade, has triggered the deepest recession in half a century. Consumer prices are declining, fueling deflation risks, and the government effort to spend its way out of the slump prompted Standard & Poor’s to cut Spain’s credit rating in January.

“It certainly seems to suggest it’s going to head way over 20 percent this year,” said Ben May, economist at Capital Economics in London. “We currently think GDP will contract by about 5 percent and I think that probably supports that.”

IMF Forecasts

That forecast is even grimmer than the International Monetary Fund’s projections released on April 22 that predict the economy will contract 3 percent this year and Spanish joblessness would reach 19.3 percent, compared with 11.5 percent in the euro area.

The government of Jose Luis Rodriguez Zapatero has adopted some 50 billion euros ($66 billion) in stimulus measures, aimed at curbing the contraction and stemming job losses. Zapatero this month replaced Finance Minister Pedro Solbes, who said that Spain couldn’t afford further stimulus measures, and replaced him with Elena Salgado, who has said that more government spending may be possible.

The government is considering extending unemployment benefits, Salgado said today in Madrid.

“It’s the greatest quarterly decline in employment since the start of the unemployment survey in 1976,” she said at a press conference. “The first quarter of 2009 is going to be the worst quarter in terms of the decline in employment.”

So far, there are few signs that the government’s efforts are helping to ease the slump. Industrial production plunged an annual 22 percent in February and consumer prices fell in March from a year earlier for the first time on record. Retail sales have fallen for 12 straight months.

Popularity Declines

Zapatero, who was elected to a second, four-year term in March 2008, has seen his popularity decline as the economic slump deepens. The opposition Peoples Party would receive 42.3 percent of the vote in European elections in June to 37.9 percent for Zapatero’s Socialists, according to a poll by Sigma Dos, published in newspaper El Mundo on April 12. Sigma Dos interviewed 900 people between April 3 and 8.

The stimulus spending and falling tax receipts caused by higher unemployment will further strain Spain’s budget gap, which the European Commission forecasts will more than double the EU’s limit of 3 percent of GDP this year. The Bank of Spain forecasts the deficit will swell to 8.3 percent of output.

Salgado said today that the government would bring its deficit in line with the 3 percent limit by 2012, as demanded by the European Commission demanded.

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

Last Updated: April 24, 2009 05:39 EDT