Spain’s unemployment rate rose to 24.4 percent, the highest in 18 years, as the euro area’s fourth-largest economy entered its second recession since 2009 amid the deepest austerity efforts in more than three decades.
The jobless rate advanced in the first quarter from 22.9 percent in the previous three months, the National Statistics Institute in Madrid said today. Unemployment was higher than the median estimate of 23.8 percent forecast in a Bloomberg survey of three analysts. Spain’s inflation rate rose in April to 2 percent from 1.8 percent, a separate report showed today.
Surging unemployment rates from Spain to Italy and Greece are threatening to derail efforts to quell the region’s debt crisis and keeping bond yields close to record levels relative to benchmark German bunds. Spain is home to more than a third of the euro-area’s jobless and more than half of young people have no work, sapping government tax revenue. Spain will miss its 2012 budget deficit target as its economy contracts, the government said on March 2.
The yield on Spain’s 10-year benchmark bond has risen about one percentage point since early March to 5.99 percent today, approaching the 7 percent level that helped force Greece, Ireland and Portugal into bailouts.
The extra yield investors demand to hold Spanish 10-year bonds rather than similar-maturity German securities was 432 basis points at 8:55 a.m. in Madrid, compared with an average 131 in the past five years. The rate has climbed more than 100 basis points this year.
Deficits to Persist
Joblessness may worsen as the recession deepens and labor market laws are overhauled. In power since December, Prime Minister Mariano Rajoy passed a plan in February to make it cheaper for employers to let workers go while raising taxes and cutting spending including health care and education.
Rajoy’s People’s Party government has pledged to reduce the budget gap to 5.3 percent of gross domestic product in 2012 from 8.5 percent in 2011 and by more than 2 percentage points next year to get within the European Union’s 3 percent limit.
The International Monetary Fund said on April 17 it expects budget deficits to persist in Spain, where the economic recession will be deeper than in other euro-region countries. The IMF forecasts a shortfall of 6 percent of GDP in 2012, narrowing to 4.1 percent in 2017.