Spain's economic woes deepened alarmingly Friday as the government revealed that unemployment rising to near 25 per cent, a day after a credit ratings agency downgraded the country's debt rating and warned it faced an uphill battle to get a grip on its finances.
Official figures showed that unemployment has jumped to 24.4 per cent in the first quarter of 2012 — the highest rate in the 17-country eurozone — from 22.9 per cent in the fourth quarter of 2011. The data show that another 365,900 people lost their jobs in the first three months of the year, taking the total unemployed to 5.6 million. The rate for people under 25 year is now 52 per cent, up from 48.5 per cent in the previous quarter.
"The figures are terrible for everyone and terrible for the government," Foreign Minister Jose Manuel Garcia-Margallo told Spanish National Radio. "Spain is in a crisis of enormous magnitude,"
'Spain is in a crisis of enormous magnitude' —Spanish Foreign Minister Jose Manuel Garcia-Margallo
The total figure for people unemployed increased by 729,400 compared to the first quarter of 2011. The National Statistics Institute said Spain now has 1.7 million households in which no one has work.
The figures were another blow to the conservative government after Standard & Poor's late Thursday became the first of the three leading credit rating agencies to strip Spain of an A rating. It cited a worsening budget deficit, worries over the banking system and poor economic prospects for its decision to reduce the rating by two notches from A to BBB+.
S&P even warned that a further downgrade is possible as it left its outlook assessment on Spain at "negative."
Back in recession
Spain, the eurozone's fourth-largest economy, is now just three notches above so-called junk status. Earlier this week, the Bank of Spain confirmed that the country had entered a technical recession — two consecutive quarters of negative growth.
The country's economic problems have become the epicentre of Europe's debt crisis in recent weeks as investors worry over Spain's ability to push through austerity measures and reforms at a time of recession and mass unemployment.
The cuts are aimed principally at slashing the government's deficit from 8.5 per cent of economic output to the maximum level set by the European Union of 3.0 per cent by 2013.
With the economy shrinking and the population restless, there are concerns that the government will not meet its targets and will be forced into seeking a financial rescue as Greece, Ireland and Portugal have done before.
The difference is that Spain's economy is double the size of the combined economies of the three countries that have already been bailed out. The other eurozone countries would struggle to muster enough money to rescue it.
Will Italy be next?
Even if the eurozone finds the financial capacity to bail out Spain, economists warn the crisis could then envelop Italy, the eurozone's third-largest economy, which owes around 1.9 trillion euros ($2.5 trillion), more than double Spain's 734 billion euros.
Alfredo Pastor, an economics professor at Spain's IESE Business School, said the latest round of bad news came as no surprise given Spain's recession and that times will get worse before they get better. Labor reforms enacted by the government to loosen up rigid laws on hiring and firing will not make a dent in the jobless rate until next year. Even so, they are not enough to right the economy.
"In fact, Spain needs deeper reforms which are effective and productivity-enhancing," Pastor said. "In the current recession, as well as labour reform, the government needs to take other measures, such as helping credit flow to business in order to help create jobs."
Pastor also said a jobless rate of nearly 25 per cent will inevitably increase Spain's deficit and government debt.
The mood among Spanish people out on the streets Friday was downcast.
"The situation is very bad. There's no work," said Enrique Sebastian,a 48-year-old unemployed surgery room assistant as he left one of Madrid's unemployment offices.
"The only future I see is one with wages of 400 euros ($530) a month for eight-hour days. And that's if you can find it," said Sebastian.
Graphic artist Fernando Garcia, 41, said he had just been laid off again.
"I've been on short-term contracts for a long time without any type of stability," he said. "I work a few months and then I have to go on the dole. But I have to be optimistic. I have no choice."