Spanish unemployment climbed to a fresh record in the third quarter as a deepening recession left one in four workers jobless, adding pressure on Prime Minister Mariano Rajoy to seek a second European bailout.
Unemployment, the second highest in the European Union after Greece, rose to 25.02 percent from 24.6 percent in the previous quarter, the National Statistics Institute said in Madrid today. That is the highest since at least 1976, the year after dictator Francisco Franco’s death led Spain to democracy. The euro-area average is 11.4 percent.
Nearly three months after the European Central Bank offered bond buys to lower its borrowing costs, Spain is still playing for time. Rajoy is ignoring pressure to seek more European aid even as the country’s recession worsens and banks report decreasing third-quarter earnings following an increase in provisions for souring real-estate assets. Spain’s Ibex 35 stock index has dropped 10 percent this year, the only decline among major European equity markets.
“The situation is serious,” said Ricardo Santos, an economist at BNP Paribas SA in London. “There is still room for a deterioration in unemployment. Activity is weak and the government will reduce jobs as there are strict targets to adjust the number of public-sector temporary workers, especially in health and education.”
The Stoxx Europe 600 Index dropped 0.4 percent at 2:08 p.m. in Paris, with the Ibex down 0.9 percent. The euro traded at $1.2902, down 0.24 percent on the day.
CaixaBank SA, Spain’s third-largest lender, said today third-quarter profit dropped 42 percent to 7 million euros ($9 million) from a year ago as it provisioned for real estate losses. Its bad loans ratio climbed to 8.42 percent from 5.58 percent in June. Banco Popular Espanol SA said profit fell 23 percent to 75.6 million euros in that period.
The yield on Spain’s 10-year benchmark bond has dropped more than 200 basis points from a July 25 euro-era high of 7.75 percent since the ECB announced its bond plan, the so-called OMT. Still, it rose after unemployment data and ECB Executive Board members’ comments dampened investor sentiment. The yield was up 5 basis points at 5.67 percent at 2:09 p.m. in Madrid, widening the spread with similar German maturities by 11 basis points to 4.14 percentage points.
In Germany, Joerg Asmussen said in a speech that tapping Europe’s bailout fund won’t automatically trigger the bond program, while in Milan, Peter Praet said the issue with Spain is “not a question of bailouts, it’s a question of adjustment.”
“If ECB council members continue to dial down expectations on the OMT, then we could see some continued weakness in the Spanish market,” Justin Knight, a European rate strategist at UBS AG in London, said in a telephone interview. “We expect the ECB will come in quite aggressively as some point but if legal hurdles prevent it from capping yields, Spain will lose market access completely next year.”
The euro area requires three more years of “costly, painful adjustments” to emerge intact from its debt turmoil, Lucio Vinhas de Souza, sovereign chief economist at Moody’s Investors Service, said in an interview in Moscow yesterday.
“Nothing has changed regarding the ECB’s intervention in secondary markets,” Deputy Economy Minister Fernando Jimenez Latorre said in Madrid today. “We are at the same point, analyzing all the possibilities, the timing and we’ll take the best decision for the Spanish economy.” The Treasury’s planned gross debt issuance of 207 billion euros in 2013 will be updated by the end of the year, with the 17 semi-autonomous regions’ funding needs yet unknown, he said.
Latorre said the economy is facing “huge uncertainty” and that he can’t tell when net job creation will resume. Joblessness has nearly tripled since 2007, before a real estate-fueled boom ended. The Bank of Spain forecast earlier this week that the euro region’s fourth-largest economy will continue to slump following a fifth straight quarter of contraction in the three months through September.
Economists surveyed by Bloomberg forecast the economy will shrink 1.4 percent next year, compared with the government’s 0.5 percent prediction. Unemployment is seen rising above 27 percent by 2014, while Rajoy expects a decline from next year.
Elsewhere in the world, governments are also seeking ways to revive their economies. Japan announced 750 billion yen (9.4 billion) of stimulus with some of the extra money coming from tapping discretionary budget funds, the government in Tokyo said today. Economy Minister Seiji Maehara told reporters that the measures would boost gross domestic product by 0.1 percentage point, without specifying over what period.
Japan has the highest debt load among developed nations and an economy at risk of contracting. The government this month downgraded its economic assessment for a third month, the longest streak since the 2009 global recession.
In South Korea, Asia’s fourth-largest economy, GDP rose 1.6 percent in the third quarter from a year earlier, the weakest since 2009, data showed today.
U.S. data due later today may show that the world’s largest economy expanded an annualized 1.8 percent in the third quarter after growing 1.3 percent in the previous three-month period, according to a Bloomberg survey. That would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.