Spain Jobless Rate Breaches 27% on Recession WoesAngeline Benoit
Spanish unemployment rose more than economists forecast in the first quarter to the highest in at least 37 years as efforts to tackle the European Union’s biggest budget deficit crimped economic growth.
The number of jobless increased to more than 6 million for the first time, climbing to 27.2 percent of the workforce, compared with 26.02 percent in the previous three months, the National Statistics Institute in Madrid said today. That was more than the 26.5 percent median forecast of eight economists surveyed by Bloomberg News.
Prime Minister Mariano Rajoy will tomorrow unveil measures aimed at halting a six-year economic slump. Spain’s recession dragged into a seventh quarter in the first three months of 2013, leaving the country with more than a fifth of all jobless people in the EU.
“The pace of the increase is surprising given we were supposed to be in a softer phase of the recession,” Ricardo Santos, a euro region economist at BNP Paribas SA in London, said in a telephone interview. “We could now end the year at 28 percent unemployment and we may see a downward revision of first-quarter growth.”
Rajoy has said the contraction in 2013 may be larger than his current forecast for a 0.5 percent slump after the deficit widened to 10.6 percent of gross domestic product last year. The government had projected in September that unemployment would fall to 24.3 percent this year from 24.6 percent in 2012.
The Bank of Spain estimated this week that output contracted 0.5 percent in the first three months of the year after a 0.8 percent drop in the previous quarter.
Unemployment in Spain, the euro region’s fourth-largest economy, has now topped the 27 percent prediction the International Monetary Fund last week made for the full year as it cut its growth forecast to a 1.6 percent contraction from 1.5 percent.
“In Spain, despite significant progress in 2012, there are still excessive macroeconomic imbalances,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told a European Parliament committee in Brussels today. “Very high unemployment and excessively tight financing conditions have exposed the vulnerabilities represented by those imbalances.”
The jobless number is the highest since at least 1976, the year after dictator Francisco Franco’s death heralded Spain’s transition to democracy. Spain’s fourth-largest builder, Fomento de Construcciones & Contratas, may fire 9.7 percent of its 1,500 garbage collectors amid slower activity, Europa Press reported this month. FCC is already negotiating with labor unions to eliminate 17.5 percent of jobs in its construction unit.
The number of households in which all the active members are out of work increased by 72,400 in the first quarter to 1.9 million, INE said. That is 177,700 more than a year ago, it said.
As public administrations stepped up firings in the education and health sectors to reduce their deficits, the number of people they employed fell to 2.85 million in the first quarter from 2.92 million at the end of 2012, INE data show. Employment in the private sector fell to 13.6 million people from 13.9 million a quarter earlier.
“There is no real sign of a fundamental improvement in Spain’s underlying economic performance,” Jonathan Loynes, chief European economist at Capital Economics Ltd. in London, said in a telephone interview. “If anything, things look worse now than they did when bond yields rose to dangerously high levels last summer.”
The yield on Spain’s 10-year bonds climbed 8 basis points to 4.36 percent as of 12:36 p.m. Madrid time, after dropping as low as 4.22 percent yesterday, the least since November 2011. That compares with a euro-era high of 7.75 percent in July, before European Central Bank President Mario Draghi pledged to “do what it takes” to hold the euro together.
Spain’s leading stock market index IBEX 35 fell 1.3 percent after the nation’s biggest bank, Banco Santander SA, said first-quarter profit fell 26 percent, missing analysts’ estimates, as lending revenue in its home market dropped.
Comments by a German Finance Ministry official yesterday suggested a softening of Chancellor Angela Merkel’s austerity-first policy, after European Commission President Jose Barroso said the path of austerity has reached its limits.
Rajoy is hoping to convince investors and EU peers that the country may return to growth next year and eventually stop a surge in its public debt load if the European Commission agrees to ease Spain’s deficit targets next month.
European policy makers gathering in Washington last week for the World Bank and IMF’s spring meetings said they were conscious of the danger after IMF Managing Director Christine Lagarde warned against “up-front, heavily loaded fiscal consolidation.”