Spain Jobless Rate Hits 26% Amid Austerity

By DAVID ROMÁN and ILAN BRAT

Reuters

Protesters in downtown Madrid demonstrated on Wednesday against planned job cuts at Bankia and three other nationalized financial institutions.

MADRID—Spain's unemployment rate reached a record 26% in the fourth quarter, the latest sign of deepening recession even as growing investor appetite for the country's government bonds brings relief from the country's debt crisis.

Data released Thursday by the National Statistics Institute showed the economy continued to shed public- and private-sector jobs as the government worked to slash a big budget deficit.

The number of unemployed is expected to grow in coming months as troubled banks close branches and lay off thousands of workers as part of an agreement to receive European Union aid.

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The new jobless figure illustrates how hard austerity programs are biting. Aiming to narrow its budget deficit to 4.5% of gross domestic product, from around 9% of GDP in 2011, the government has raised income and sales taxes, slowed the growth of pension payments and cut unemployment benefits. Public administrations have also been discarding workers, cutting back purchases and putting a brake on investment.

This week brought another negative number from the Bank of Spain: The economy contracted 1.7% in the fourth quarter from the fourth period of 2011, its worst quarterly performance in more than two years. And the International Monetary Fund weakened its forecast for Spain's economy by 0.3 percentage point, saying it anticipates a 1.5% contraction this year. Spain's government expects the economy to shrink 0.5% this year.

The downturn contrasts with recent signs of investor interest. Spain this month has sold about 15% of its bond-issuance target for 2013.

The yield on 10-year Spanish government debt is now about 5%, the lowest since March 2012, according to Tradeweb.

Spanish banks, which were shut out of wholesale financial markets for most of 2012, have issued billions of euros in new bonds in recent weeks.

Even as they reported a drop in 2012 profit,Banco de Sabadell SASAB.MC -0.42% andBankinter SABKT.MC -2.05% said Thursday that they would begin this year to repay emergency-liquidity loans from the European Central Bank.

Analysts said the disconcerting jobless figure obscures other positive developments in Spain's economy. Wage growth has eased, while productivity and exports have increased. The country is becoming more attractive for foreign investment. The current-account deficit is narrowing to close to break-even.

"All of these things are growing out of the adjustment that happened in the crisis" in Spain, said Gayle Allard, an economist at IE Business School in Madrid. "They are reasons for optimism going forward. I think 'buy Spain' is a reasonable thing to do right now."

The investor optimism isn't yet translating to the street, where Spaniards across the country demonstrate nearly every day against government austerity programs and mass layoffs.

Thousands of people thronged Calle Alcalá in downtown Madrid late Wednesday, despite near-freezing temperatures, to protest plans by Bankia SA BKIA.MC +2.93%and three other nationalized banks to eliminate 10,000 jobs.

Unemployment is particularly high among foreign workers who were drawn to Spain by the millions during a decadelong housing boom starting in the mid-1990s.

Five years after that boom went bust, the unemployment rate among foreigners is more than 36%. More than 300,000 foreigners have left the labor market since 2008 even as the number of Spanish citizens in it has stayed about level.

"This last year, you can tell everything has gotten worse. There's like 20 candidates for each available job," said Jorge Jiménez, a 39-old Ecuadorean citizen standing outside an employment office in downtown Madrid Thursday. A former waiter now unemployed for five months, he is receiving €500 ($666) in monthly jobless benefits, which will run out this summer.

Mr. Jiménez said he hopes his Ecuadorean wife can hang on to her job as a housekeeper so they and their three children don't have to leave Spain, joining an exodus that keeps Spain's jobless rate from climbing even higher. But that possibility is looming large.

"If things don't get any better at some point, we'll just have to go back to Ecuador," he said.

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