Spanish unemployment hits record 24.4% – Stephen King: ‘The recession is so deep that when you take one step forward on austerity, it takes you two steps back’
Spanish unemployment has hit a new record high, official figures have shown.
The number of unemployed people reached 5,639,500 at the end of March, with the unemployment rate hitting 24.4%, the national statistics agency said.
The figures came hours after rating agency Standard & Poor’s downgraded Spanish sovereign debt.
Official figures due out on Monday are expected to confirm that Spain has fallen back into recession.
Earlier this week, the Bank of Spain said the economy contracted by 0.4% in first three months of this year, after shrinking by 0.3% in the final quarter of last year.
Other figures released on Friday showed that Spanish retail sales were down 3.7% in March from the same point a year ago, the 21st month in row sales have fallen.
In the first three months of the year, 365,900 people in Spain lost their jobs.
The country has the highest unemployment rate in the European Union and it is expected to rise further this year.
The recession is so deep that when you take one step forward on austerity, it takes you two steps back”
Stephen KingChief economist, HSBC
The rate has risen sharply since April 2007, when it stood at 7.9%.
“The figures are terrible for everyone and terrible for the government… Spain is in a crisis of huge proportions,” Foreign Minister Jose Manuel Garcia-Margallo said.
The new government has announced reforms to the labour market, including cutting back on severance pay and restricting inflation-linked salary increases, that it hopes will ease the problem.
These measures have angered unions, which have organised widespread general strikes in protest.
The government has also introduced drastic spending cuts designed to reduce its debt levels and meet deficit targets agreed with the European Union. These cuts are contributing to Spain’s economic contraction.
“In Spain today, a cycle similar to Greece is starting to develop,” said HSBC chief economist Stephen King.
“The recession is so deep that when you take one step forward on austerity, it takes you two steps back.”
The interest rate, or yield, on Spanish government bonds traded in the secondary market rose following the release of the unemployment figures and the S&P downgrade.
The yield on 10-year bonds rose to 5.96%, up from 5.81%, suggesting investors were becoming more wary of Spain’s ability to repay its debts.
Also on Friday, the interest rate Italy has to pay to borrow money from international investors rose. In a sale of 10-year bonds, the government offered a rate of 5.84% compared with 5.24% at a similar sale a month earlier.
However, the government raised 5.95bn euros ($7.88bn; £4.85bn), towards the top end of its target range.
Late on Thursday night, the ratings agency Standard & Poor’s cut Spain’s rating by two notches to BBB+, warning that the country might have to take on more debt to support its banking sector.
S&P predicts the Spanish economy will shrink by 1.5% this year, having previously forecast 0.3% growth.
However, the agency did make a number of positive comments about the government’s attempts to bolster Spain’s economy.
“We believe that the new government has been front-loading and implementing a comprehensive set of structural reforms, which should support economic growth over the longer term,” S&P said.
“In particular, authorities have implemented a comprehensive reform of the Spanish labour market, which we believe could significantly reduce many of the existing structural rigidities and improve the flexibility in wage setting.”
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