Spain Recession Scars Exposed as Jobless Seen at 6 Mln

Spain’s scars from the slump that overshadowed Prime Minister Mariano Rajoy’s first year in office will emerge this week as data show the toll on economic output that may have kept as many as 6 million people out of work.

Spanish exports fell 0.6 percent in November from the same month the previous year, when they had risen 7.4 percent, the Economy Ministry said today. House-price data tomorrow will show if the property market endured a fourth year of declines. The Bank of Spain may also release its estimate for fourth-quarter gross domestic product, and the data will culminate in jobs figures on Jan. 24, forecast by economists to show a record 26 percent of Spaniards unemployed.

Officials predict the euro-area’s fourth-biggest economy faces a further slump this year at a time when the government will struggle to meet its budget goals. Such a backdrop hasn’t deterred investors, with the prospect of a European Central Bank backstop in the event of a bailout enabling the Treasury to fast-track higher 2013 funding needs, selling 16 billion euros ($21 billion) at its first three auctions at lower costs.

“Unemployment will continue to rise this year,” said Sara Balina, an analyst with Madrid-based consultancy firm Analistas Financieros Internacionales. “Demand will deteriorate and outweigh the positive contributors to growth that are tourism and exports.”

Spanish Bonds

Spanish two-year bonds declined, pushing the yield up four basis points to 2.53 percent at 12:45 p.m. Madrid time. The nation’s 10-year bond yield was up three basis points at 5.11 percent, compared with a euro-era record of 7.75 percent in July. The spread with similar German maturities was 3.52 percentage points.

Unemployment probably rose to 26 percent of Spain’s active workforce in the last quarter, reaching 6 million unemployed, according to a median of 10 estimates in a Bloomberg survey. One-in-three of all jobless in the euro zone are in Spain.

Missed payments as a proportion of total loans at Spanish banks rose to a record 11.38 percent in November, the Bank of Spain said last week, while purchases of the country’s banks’ bonds and shares have spurred rallies of 19 percent this year in Banco Popular Espanol SA and 16 percent for CaixaBank SA. Lending shrank 0.3 percent in November from October and 5.7 percent from the same month a year ago.

Bad Loans

The default rate on loans to companies rose to 17 percent in the third quarter, 30 percent for real estate-linked activities and 3.49 percent for homeowners. The Bank of Spain is seeking to improve data on evictions due to mortgage defaults after suicides linked to home repossessions provoked public outrage, prompting government measures to limit them.

The economy will contract 1.5 percent this year after shrinking 1.4 percent in 2012, according to the median of 26 estimates in a Bloomberg survey. GDP declined between 1.3 percent and 1.4 percent last year and will be flat or positive in the second half this year, Economy Ministry Luis de Guindos said in an interview with La Razon newspaper yesterday. The minister said gross domestic product would have fallen between 4 percent and 5 percent last year had Spain requested aid from the ECB and the European Union’s rescue-fund, the newspaper said.

“We aren’t out of the woods,” said Fadi Zaher, head of fixed-income sales and trading for Barclays Wealth and Investment Management in London. “The markets have priced in the risk of fiscal consolidation dragging down growth for some time but not that Spain could actually need a bailout.”

GDP Estimate

The Bank of Spain is due to publish this week a first estimate for GDP in the three months through December. Industrial sales fell 4 percent in November from a year ago while orders fell 1.5 percent, Spain’s national statistics institute INE said last week. Activity in the services sector was down 7.8 percent.

Since coming to power in December 2011, Rajoy has taken the strictest austerity measures in the nation’s three-decade old democratic history to tackle the second-largest budget deficit in the euro area. While he is expected to have missed a target of 6.3 percent of GDP for 2012, income tax and sales tax increases as well as cuts in public wages, jobs and unemployment benefits have hurt domestic demand.

Vodafone Group Plc last week said it’ll cut 900 jobs compared with 4,300 employees in Spain due to revenue decline. Spanish banks are shrinking their networks in return for European rescue-fund loans to recapitalize, with thousands of layoffs through 2015. In the public sector, job cuts have surged as the government and the regions implement cuts in health care and education.

Spain Attractive

“Spain may be attractive to buy now, economic fundamentals point in a different direction,” said Ricardo Santos, an economist at BNP Paribas SA in London, who sees the rate ending the year at 27.1 percent. “Spain is in the worst part of its cycle as the harshest part of the fiscal adjustment starts to produce its impact, the social cost will increase as the public sector sheds jobs on top of the private one.”

In Asia, the Bank of Japan starts a two-day policy meeting today and will adopt the 2 percent inflation target advocated by Prime Minister Shinzo Abe, doubling its current 1 percent goal, according to people familiar with central bank officials’ discussions.

In Taiwan, export orders climbed for a fourth month in December, signaling the economy’s recovery is gaining traction amid stronger demand from the U.S. and China. In Hong Kong, December’s underlying consumer-price index, which indicates inflation excluding distortions from government subsidies, rose 3.8 percent in the year.

London Homes

In Europe, London home sellers flooded the market in January and pushed up asking prices in the biggest new-year increase since 2008, according to data from property website operator Rightmove Plc. Asking prices in the capital rose 3.6 percent from the previous month to an average 480,890 pounds ($764,000), it said.

German producer prices fell 0.3 percent last month after dropping 0.1 percent in November, missing a median estimate of 19 economists in a Bloomberg News survey, which was for no change. In Switzerland, third-quarter producer prices rose 2.2 percent from a year ago.