Spain: Bleak forecast puts unemployment at 22% in 2010

Citigroup has just released a forecast which is very troublingregarding employment and growth in the Spanish economy.  With unemployment already having hit 17.9%, Citigroup expects layoffs to increase this to 22% in 2010.  Below is my translation of the Spanish-language article in Finanzas.

The stabilization that the Spanish labour market seems to have shown, with an increase of 0.5% in the unemployment rate to 17.9%, is only an illusion. Unemployment will continue rising, reaching 22% at the end of next year, economists estimated as U.S. bank Citigroup.

In the opinion of the experts at the company, the recovery will reach Spain later than elsewhere in Europe because of the extent of deleveraging facing the Spanish economy. Therefore, there remains a substantial possibility that unemployment will continue to rise, after the withdrawal of the effects of fiscal measures taken by the Government.

However, the company recognizes that the figures published today confirm that the pace of job destruction did slow in the spring. But a large part of the improvement occurred in the construction sector, primarily due to the impact of government support measures (Plan E).

But given the sharp adjustment that the construction sector has to face, Citi doubts much of the data that showed a real change in the trend in employment today. Ultimately, the analysts suggest that the improvement is cyclical and not structural.

According to the data released today in the Labour Force Survey (LFS) by the INE, the number of unemployed persons increased by 126,700 in the second quarter compared with the first, to 4,137,500, bringing the unemployment rate to 17.92% of the working population. The number of unemployed is a record number, the highest since 1976 when record-keeping began.

Moreover, the number of households with all members unemployed rose by 49,900 in the second quarter and 564,400 in one year, which brings the total to 1,118,300, while that of households with all members employed fell by 9 8% to 9,519,400.

Basically, things are looking bleak in Spain despite the positive spin some are putting on today’s numbers.  Hopefully my last two posts on Spain, House price declines accelerate in Spain and Hypo Real Estate need for 10 billion also reveals huge problems in Spain, give you a sense that there is more downside to come for Spain’s property sector and its banking sector. This very definitely will negatively impact the employment market in Spain.  Zapatero should feel lucky he was re-elected last year or he too would soon find himself unemployed.

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