SPAIN’S UNEMPLOYMENT rate rose above 20 per cent for the first time in more than a decade, undermining prime minister José Luis Rodriguez Zapatero’s fight to cut the euro region’s third-largest budget deficit.
The jobless rate rose to 20.1 per cent in the first quarter, from 18.8 per cent in the previous three months, the Madrid-based National Statistics Institute said yesterday.
Spanish unemployment is the highest in the euro region and double the average rate in the European Union, according to separate data from the EU’s statistics office.
Spanish borrowing costs have surged in the past two weeks on concern the country will struggle to push the deficit below the EU limit of 3 per cent of economic output.
Standard and Poor’s cut Spain’s credit rating on April 28th, saying the government was underestimating its fiscal problems and overestimating growth prospects.
Adding to public spending, Mr Zapatero has extended benefits for the long-term unemployed.
“The government’s scenario is a bit more optimistic than what we’re seeing, so the welfare costs for the unemployed are going to be higher,” said Jesus Castillo, an economist at Natixis in Paris.
“If they don’t take new measures, the 3 per cent deficit target is not going to be met.”
The extra yield investors demand to hold Spanish debt rather than German equivalents fell to 97 basis points today from 99 basis points yesterday.
The premium reached the highest in more than a year this week. Deputy finance minister José Manuel Campa said the unemployment rate would not affect Spains budget-deficit forecasts, and the government was sticking to a forecast for an average jobless rate of 19 per cent this year.
He said the number of unemployed, at 4.6 million in the first quarter, was not expected to reach five million.
The cabinet was considering measures today to reduce public administration costs and reach a €50 billion spending-cut target announced in January.
At 11.2 per cent of gross domestic product, Spain’s budget shortfall was the third-biggest in the euro area last year, trailing only Greece and Ireland.
Standard Poor’s said it expects the Spanish deficit to stay above 5 per cent in 2013, the year the government has pledged to cut it to the EU’s 3 per cent limit.
The ratings agency expects Spain’s economy to grow an average of 0.7 per cent a year until 2016, and sees the jobless rate reaching 21 per cent this year. – (Bloomberg)
