Spain Jobless Rises More Than Forecast to Decade High

By Emma Ross-Thomas

Oct. 2 (Bloomberg) -- Registered unemployment in Spain, which has Europe’s highest jobless rate, rose in September to the most in more than a decade, adding to signs the economy may take longer to recover than others in the region.

The number of people registering for unemployment benefits increased by 80,367, or 2.2 percent, from August to 3.71 million, the most since at least 1997, the earliest year for which comparable data are available. Economists had expected an increase in the month of 50,000, according to a Bloomberg News survey of five economists. From a year earlier, unemployment climbed by 41 percent, the Labor Ministry in Madrid said today.

Spain’s economy shrank for a fifth straight quarter in the three months through June, while Germany and France returned to growth. Once the motor of job creation in the euro region, Spain now accounts for half of the region’s increase in unemployment in the past year and the country’s jobless rate will exceed 20 percent in 2010, the International Monetary Fund said yesterday.

“It’s worse than expected and much worse than seasonal factors alone,” said Jose Luis Martinez, a strategist for Spain at Citibank Plc in Madrid. “What we’re probably seeing in September, which is going to continue in the coming months, is that projects of the government’s Plan E are coming to an end.”

The Spanish government has put tens of thousands of people to work on public infrastructure projects, in a program known as Plan E. Even so, Spain leads the rise in European unemployment with a jobless rate of 18.9 percent, compared with a euro-region average of 9.6 percent in August, according to the European Union statistics office. Youth unemployment in Spain is 39.2 percent, almost double the European average.

No ‘Motors’

“What sustained growth in recent years was job creation, immigration and the development of the working population, and now none of those motors exists,” said Jesus Castillo, an economist at Natixis in Paris who expects the unemployment rate to hold steady at around 20 percent throughout next year. “The recovery in Spain is going to be slow.”

Rising unemployment in Spain is boosting welfare spending and putting additional pressure on a swelling budget deficit. After agreeing to extend jobless pay for people who have come to the end of their contributions-based benefits, the government will raise taxes next year to trim the deficit to 8.1 percent of gross domestic product in 2010 from 9.5 percent in 2009.

Rising unemployment is also eroding support for Prime Minister Jose Luis Rodriguez Zapatero, whose Socialist Party fell behind the main opposition party in an opinion poll in July for the first time since last year’s election. The poll of 2,500 people by the state-run Center for Sociological Research gave the People’s Party 40.2 percent of the vote, compared with 39 percent for the Socialist Party.

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