Spanish unemployment rose to a record in the final quarter of 2012 as Prime Minister Mariano Rajoy’s government imposed the deepest budget cuts in the country’s democratic history.
The number of jobless approached 6 million people, or 26.02 percent, from 25.01 percent in the previous three months, the National Statistics Institute in Madrid said today. That matched the median forecast of 10 economists surveyed by Bloomberg. Spain is now home to a third of the euro region’s unemployed.
The jobless number rose as Rajoy marked his first anniversary in office. It is now the highest since at least 1976, the year after dictator Francisco Franco’s death heralded Spain’s transition to democracy. Some officials predict the slump that hit the euro area’s fourth-largest economy in 2008 will extend into this year.
“The government expects unemployment to come down in 2013 but it seems too optimistic given not only the weak economic activity we expect but also the usual lag between activity and unemployment,” said Ricardo Santos, a euro-area economist at BNP Paribas SA in London. “This will continue going forward given that the bulk of the cuts in the public sector is yet to be made.”
INE data released today show that 259,000 unemployed people in the last quarter had lost a position in the public sector up from 176,000 at the end of 2009.
Job destruction will probably continue until the end of the year, Spanish Deputy Economy Minister Fernando Jimenez Latorre told reporters in Madrid today. The worsening economic contraction and higher unemployment in the last quarter of 2012 are the result of “the concentration of a large part of the budget cuts approved to boost income and cut spending, as tax on sales was raised and public sector employees’ year-end bonus scrapped.”
While budget cuts have a negative impact on output in the short term, they are necessary to regain investors’ confidence, Latorre said. The improvement of Spain’s funding conditions will eventually translate into better credit conditions for the private sector, leading to an economic recovery along with an increase in exports, in the second half, he said.
The International Monetary Fund yesterday cut its forecast for economic growth in Spain this year, forecasting that gross domestic product will contract 1.5 percent after previously predicting a drop of 1.4 percent.
The Bank of Spain said separately that the recession worsened in the fourth quarter due to budget cuts. The central government and the regions started implementing Rajoy’s fifth package of austerity measures in a year, including higher sales tax and cuts in unemployment benefits, public-sector jobs and wages.
Meeting the European Union deficit target for 2013 will require “a very ambitious additional fiscal effort,” the Bank of Spain said. The European Commission said this week that Spain will probably miss its 2012 goal of 6.3 percent of GDP, and in 2013 it sees the shortfall at 6 percent.
“The government’s forecast of a 0.5 percent contraction this year is already looking way too optimistic,” Jonathan Loynes, chief European economist at Capital Economics Ltd. in London, said by telephone. “We predict a 2.5 percent drop as the negative forces in recent quarters, including a dreadful labor market, persist.”
Carmaker Seat may cut as many as 740 jobs affecting 400 temporary workers and 340 office employees, La Vanguardia reported this week. Other measures being considered are reducing working hours and cutting wages to boost productivity amid adverse conditions for sales, the newspaper said.
Rajoy has still won time among investors as a rally in securities of so-called peripheral countries enables him to avoid seeking a full international bailout. Spain sold 7 billion euros ($9.3 billion) of 10-year bonds via banks on Jan. 22.
“It is necessary to distinguish between the markets and the real economy, which continues to be worrying,” Sara Balina, chief economist for Spain at Madrid-based consultancy Analistas Financieros Internacionales, said in a telephone interview. AFI forecasts an average unemployment rate of 27.3 percent this year. “More fiscal consolidation efforts will have to be made and exports won’t make up for a deteriorating domestic demand.”
Rajoy has requested the Spanish regions divide their combined deficit by five in the two years through the end of 2013, even as education and health care represent over half of their spending and the recession undermines tax receipts.
While Economy Minister Luis de Guindos this week ruled out additional budget cuts, the government is working on an overhaul of public administrations that could further fuel unemployment this year. Expansion newspaper said yesterday a draft law pares more than 60 percent of local government jobs across Spain.