Spanish Jobless Claims Slow, Boosting Rajoy Recovery

Spanish jobless claims slowed in February, lending support to the government’s view that the country has overcome the worst of a six-year slump.

The number of registered unemployed in the euro region’s fourth-largest economy rose by 59,444 from the previous month, less than half the increase in January, to 5.04 million, the Labor Ministry in Madrid said in an e-mailed statement. That’s the best February performance in five years.

Prime Minister Mariano Rajoy is trying to persuade Spanish voters and European Union officials he can get the economy back on track after overshooting his budget-deficit target by more than 50 percent in 2012. The EU last month predicted Spain’s contraction will be almost three times the government’s 0.5 percent forecast.

“At some point, firms cannot cut further,” Guillaume Menuet, an economist at Citigroup Inc. in London, said by telephone. “Perhaps we are reaching the end of the largest increases we had in the past, but a turnaround in the jobless rate in 2013 is very unlikely.”

European Central Bank President Mario Draghi has said restarting the euro-region economy is his biggest challenge in 2013 after stabilizing the bloc’s financial system last year by pledging to defend the euro. Output from the 17-nation currency union will shrink by 0.3 percent this year, the EU forecasts.

Market Skepticism

“The worst of the threat is passing into memory,” Rajoy told the Spanish parliament last month. “We have other challenges to face, but they will not be so grave.”

The yield on Spain’s 10-year benchmark bonds was little changed at 5.098 percent at 10:30 a.m. in Madrid. It surged to a year-high of 5.59 percent on Feb. 26 after the election in Italy failed to produce a clear winner.

“If Spain remains exposed to a vicious circle of weak growth, missed fiscal targets and additional austerity, the markets could turn increasingly skeptical,” Reinhard Cluse, a London-based UBS AG economist, wrote in a note last week.

The jobless figures run counter to signals from power-grid operator Red Electrica Corp., which last week reported the biggest decline in electricity demand in almost four years. Power usage dropped 5.5 percent in February from a year earlier, the most in almost four years, as factories dialed back operations and domestic consumption fell, the company said.

Decline Continuing

“This is a good indicator that the pace of decline is set to continue,” Jose Garcia Montalvo, a professor of economics at Barcelona’s Pompeu Fabra University, said in a telephone interview. “Things are not turning around, far from it.”

The Bank of Spain said last week that the recession is extending into the first quarter amid weak domestic demand. Export growth slowed in the last quarter while tourism declined, it said. The number of tourist visits fell 2.6 percent in January from a year earlier.

The country’s record jobless rate will climb to 27 percent this year, the EU forecast last month. A third of all unemployed in the euro region are in Spain.

Deputy Economy Minister Fernando Jimenez Latorre last week said Spain’s recession will moderate in the first three months of the year. Output fell by 0.8 percent in the last quarter of 2012, the most in four years.