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Budget cuts push Spain jobless to 25 percent

People wait to enter a government-run employment office in Madrid September 4, 2012. REUTERS/Susana Vera
People wait to enter a government-run employment office in Madrid September 4, 2012. REUTERS/Susana Vera

By Nigel Davies

MADRID (Reuters) - Spain's unemployment rate hit a record high in the third quarter, with one in four out of work and more expected to lose their jobs in 2013 as the next phase of government cutbacks kicks in.

At exactly 25 percent, Friday's official number was the highest since the Franco dictatorship ended in the mid-1970s, and gives fresh impetus to calls by labor unions for a general strike next month.

That action is part of an increasingly vocal protest campaign against successive waves of spending cuts and tax hikes that, critics argue, has only served to put more people out of work rather than getting to grips with Spain's economic crisis.

"Weaker growth than expected, coupled with austerity, could easily see unemployment hit 26 percent next year," said Silvio Peruzzo, economist at Nomura in London.

The rate was 24.6 percent in the second quarter, and analysts had expected Friday's National Statistics Institute data to show a rise to 25.1 percent.

The number out of work stood at 5.8 million.

Of European Union countries only Greece, mired in an even more brutal recession than Spain and battling to stave off bankruptcy, has a higher jobless rate.

MORE PRESSURE

Friday's data puts further pressure on the government as it debates whether to seek international aid while it battles to bring down the public deficit in line with European Union demands in a recession that shows no sign of letting up.

Government forecasts show the economy contracting next year by 0.5 percent, but economists in a Reuters poll this week said they expect it to shrink three times faster.

"There is a debate over the optimistic growth outlook for next year by the government, which is given little credibility," Nomura's Peruzzo said.

Spain's financing needs are largely covered for this year, and its cost of borrowing from debt markets has eased significantly since August thanks to the European Central Bank's promise to buy the country's bonds should it call for financial help.

Its 10-year bond yields were higher on Friday, rising around 6 basis points to 5.69 percent.

But austerity measures worth over 60 billion euros ($78 billion) by 2014, are likely to crimp growth further, and cast more workers out of work.

Meanwhile, labor reforms pushed through this year aimed at making it easier for companies to hire and fire have encouraged many to make mass layoffs as demand remains fragile.

MORE TIME ON DEFICIT

The government expects the economy to shrink 1.5 percent this year, while the official outlook is for the unemployment rate not to fall below 24 percent until 2014.

Peruzzo said the outlook would only improve if Spain is granted more time to cut its public deficit, a move that is backed by the International Monetary Fund to help struggling euro zone countries.

"I've been out of a job for six months and am looking for work wherever I can get it," said German Herrero, 42. He said he lost his job at Vodafone after 12 years of service and had left his family behind in the eastern city of Albacete to search for work in the capital.

"If this fails, then I may think of going to England next year," he said.

The economy slipped back into recession at the end of last year. The government says 2013 will be the final year of recession for Spain, a view shared by the euro zone's largest bank Santander.

On Friday Madrid's transport system slowed to a skeleton service as workers protested against salary cuts. Protests have mounted over the past weeks, particularly against cuts to the country's healthcare system and education.

Some people in work have cause to complain too, going without paychecks as companies struggle to meet payments, while others have welcomed early retirement packages in fear of worsening times ahead.

"I'm happy as I was given early retirement at 55, but the situation is grim and Germany has the country by the neck," said Jose Albalt in a wet Madrid on Friday morning. He said he was offered a retirement package last year when the bank he worked for was merged with another and 1,200 jobs were lost.

Spain's banking system is undergoing a major restructuring process after property investments they made during a decade-long boom soured when the economy began to crash.

(Reporting by Nigel Davies; editing by Fiona Ortiz and Patrick Graham)

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