A total 5.64 million people searched in vain for work in the recession-bound economy
AFP/File – Cristina Quicler
Record unemployment, soaring problem loans at the banks and a ratings downgrade heaped pressure on Friday on Spain’s government as it battles to dispel fears it may need a debt rescue.
The country, deep in recession, was “perhaps going through one of its most difficult periods on the economy,” government spokeswoman Soraya Saenz said as Madrid took stock of an increasingly difficult position.
“We are aware that this is a difficult time but if we all work together, we will get out of the crisis,” Saenz added.
Germany, the eurozone’s economic powerhouse and paymaster, expressed its confidence in Spain’s efforts to tame the crisis.
The jobless rate hit 24.44% in the first quarter, up sharply from 22.85% in the last three months
Berlin believes that “Spain is determined to do whatever is necessary to overcome the challenges posed by the crisis,” said Steffen Seibert, spokesman for Chancellor Angela Merkel.
Spain’s jobless rate hit 24.44 percent in the first quarter, up sharply from 22.85 percent in the last three months of 2011 as 365,900 jobs were lost, pushing unemployment to its highest level since 1996, official data showed.
Just hours earlier, Standard and Poor’s slashed Spain’s credit rating two notches to BBB+, with a negative outlook, warning of recession this year and next which will make it even harder to meet its deficit-cutting targets.
At the same time, the government was increasingly likely to have to pump in funds to help the banks, many still burdened by non-performing loans piled up since the property bubble imploded in 2008, S&P said.
Bank of Spain figures on Friday showed the commercial banks held problem real estate loans worth 184 billion euros, some 60 percent of their property portfolio at the end of 2011, and up from 176 billion euros in June.
Last week, the central bank said the ratio of bad loans — those at least three months in arrears — hit an 18-year high in February of 8.15 percent of total credit extended, the highest since 1994 and up from 7.91 percent in January.
Spain left reeling as figures show a quarter unemployed. Duration: 01:56
“The Bank of Spain has increased its demands for transparency required from the banks as regards their exposure to the property sector,” the central bank said Friday.
It said the impact on the banks’ balance sheets had been more severe in the second half of last year because of the “increasing deterioration of the macro-economic and financial situation in Spain and in the eurozone.”
“The rain in Spain is falling mainly on the banks … and there are dark clouds over the Spanish economy generally,” London-based VTB Capital economist Neil MacKinnon told AFP.
“In addition, there is a growing backlash against austerity policies which are imposing depressionary and deflationary conditions on much of the eurozone.”
The government meanwhile insisted it was on the right track, forecasting a return to modest growth next year and to balanced budgets by 2016, in line with European efforts to move past debt bailouts for Greece, Ireland and Portugal.
“For 2013, we are projecting slight growth” of 0.2 percent, Economy Minister Luis de Guindos said, after an expected contraction of 1.7 percent this year.
De Guindos said the economy should then pick up to post growth of 1.4 percent in 2014 and 1.8 percent in 2015.
Spain posted a public deficit — the shortfall in revenues to spending — equal to 8.5 percent of Gross Domestic Product last year, way above the 6.0 percent target and the EU ceiling of 3.0 percent.
Already, Spain had the highest unemployment ratio in the industrialised world
AFP/File – Cristina Quicler
After a series of biting and hugely unpopular austerity measures, the government aims to get the deficit down to 5.3 percent this year and 3.0 percent in 2013.
De Guindos said the deficit would fall further to 2.2 percent in 2014, 1.1 percent in 2015 and finally to be in balance by 2016.
Analysts were sceptical.
“In Spain today a cycle similar to Greece is starting to develop. The recession is so deep that when you take one step forward on austerity, it takes you two steps back,” said HSBC chief economist Stephen King.
Many doubt the Spanish government can meet its deficit goals given the recession which tends to cuts tax income and increases welfare costs.
“In our opinion, these targets are currently unlikely to be met given the economic and financial environment,” S&P said, forecasting instead a deficit of 6.2 percent of GDP this year and 4.8 percent in 2013.
Spain reels from record jobless figures, downgrade