Spain Joblessness Breaches 25%, Adding to Rescue Pressure
Spanish unemployment climbed to a 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 situation is serious,” Ricardo Santos, an economist at BNP Paribas SA in London, said by telephone. “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.”
Nearly three months after the European Central Bank offered bond buys to lower its borrowing costs, Spain is still playing for time. Economy Minister Luis de Guindos said on Oct. 23 that the recent improvement in funding conditions shows they depend on investors’ perception of the euro’s future rather than domestic issues.
Since the ECB’s offer, 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. It was at 5.67 percent at 8:41 a.m. in Madrid while the spread with similar German maturities was 411 basis points, compared with a 650 basis-point record in July.
In line with a 25 percent median forecast in a Bloomberg survey of 7 economists, joblessness has nearly tripled since 2007, before a real estate-fueled boom ended. The euro-area average is 11.4 percent, according to Eurostat.
De Guindos on Oct. 23 expressed confidence that foreign investors are returning to the Spanish debt market, hours after the Bank of Spain forecast the euro region’s fourth-largest economy will continue to slump following a fifth quarter of contraction in the three months through September.
“That is because the government is doing what it has to do and because we are all acting to dissipate doubts on the euro’s future,” de Guindos told lawmakers in Madrid.
“Unemployment is one part of a multifaceted problem in Spain,” said Justin Knight, a European rate strategist at UBS AG in London. “The recession is looking very bad and it looks like it will be worse than forecast. This is a Spanish problem as much as it is a problem of the euro; Spain’s public and private sector net external debt is the same size as Greece’s.”
While Rajoy this week praised the ECB’s proposal as “an important step forward,” he stopped short from applying for aid. After a summit with European leaders in Brussels, Rajoy said on Oct. 19 that he feels no pressure to make a decision and that aid for Spain wasn’t discussed.
“It’s unlikely that the government’s forecasts will be met next year as fiscal consolidation accelerates,” said Sara Balina, an analyst with Madrid-based consultant firm Analistas Financieros Internacionales, or AFI, that counts public administrations among its clients.
“Third-quarter data were better than expected because they were distorted by a temporary increase in demand before a value- added tax increase and by exports that may suffer from weakening growth in the euro zone,” she said.
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 joblessness to start falling next year.
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