Spain Entering Recession, Unemployment to Jump, Survey Shows

By Ainhoa Goyeneche and Emma Ross-Thomas

Sept. 2 (Bloomberg) -- Spain is probably entering into a recession that will push the unemployment rate to a peak of 14 percent, as a slump in the housing market spreads through the rest of the economy, a survey of economists showed.

The chances of Spain's economy shrinking for two straight quarters by the end of next year increased to 67.5 percent from 50 percent a month ago, according to the median of 14 responses in a Bloomberg News survey. Eight of the 10 economists who forecast the start of the recession predicted it would begin in the third quarter of this year.

Spain, which grew faster than the euro-region for more than a decade on the back of a construction boom, expanded at the slowest pace since a 1993 recession in the second quarter as banks reined in lending and higher living costs eroded incomes. Retail sales have fallen for eight months and data today showed Spain's jobless ranks swelled for a fifth month in August.

Unemployment in Spain, which created half the euro- region's jobs between 2001 and 2006, will rise to a peak of 14 percent, a median forecast from the survey showed. Joblessness reached 10.4 percent in the second quarter.

``It's very difficult to see a corrective medicine in the short-term,'' said David Owen, chief economist for developed markets at Dresdner Kleinwort in London, who says the Spanish economy may not expand for five years.

Banks have seen loan defaults rise while real estate companies have written down the value of their assets. Property developer Inmobiliaria Colonial SA reported a net loss of 2.38 billion euros ($3.5 billion) for the first half as it wrote down the value of property assets and a stake in a construction firm.

The Spanish government has forecast economic growth of 1.6 percent for this year, 1 percent for next, and aims to return to growth levels around 3 percent from 2010. Finance Minister Pedro Solbes has said he is not forecasting a recession, even after the euro-region economy contracted in the second quarter.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net