The unemployment rate in Spain, once an engine of European job creation, jumped the most in 15 years in the first quarter to a three-year high as the building market contracted, Bloomberg reported.
The jobless rate rose to 9.6 percent from 8.6 percent in the fourth quarter, the Madrid-based National Statistics Office said on its Web site. The last time the rate increased that much was in the first quarter of 1993, when Spain most recently slipped into recession. The number of unemployed rose 13 percent, or 246,000, to 2.1 million people, the report said.
``This is brutal,'' said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid. ``That this can happen while the economy is still growing around 2.5 percent is really worrying.''
The global credit shortage is exacerbating the contraction in the Spanish real estate market following the construction boom that saw almost five million homes built in the past decade. Home sales fell by more than a quarter in the year to January as banks withheld credit from potential buyers.
`` Spain's getting hit from all sides,'' Dominic Bryant, an economist at BNP Paribas SA in London, said. ``This is still the early stages, and unemployment is picking up pretty quickly already.''
Spain's economic growth will slow to 2.4 percent this year compared with 3.8 percent in 2007, the Bank of Spain said this month. The International Monetary Fund says the growth rate will be 1.8 percent, less than half of last year's pace.
``The deceleration is more intense than expected, especially in construction, but in manufacturing and services are still doing well,'' Deputy Finance Minister David Vegara said at a press conference today in Madrid. ``We still see a net increase in jobs in 2008.''
Vegara predicted that Spain's annualized economic growth slowed to less than 3 percent in the first quarter.
The yield on Spain's benchmark government bond fell 1 basis point to 4.45 percent and the price rose, the only of Europe's benchmark government bonds to advance today.
Europe's fifth-biggest economy created more than half of all new jobs in the euro region in the five years through 2006 as record low interest rates and surging construction fueled a virtuous circle of consumption and hiring. Now that process has gone into reverse as banks shut off funding to homebuyers and a glut of properties is depressing home prices. Mortgage lending fell 28 percent in the year to January.
``This is a credit crunch,'' Angel Berges, managing director of Analistas Financieros Internacionales told an April 7 construction industry conference. ``This is a result of the drought that Spanish banks are facing in the international markets.''
Employment in the construction industry fell by 73,200, or 2.7 percent, three times the pace of the previous quarter's decline, the report said. Manufacturing jobs increased by 59,400 or 1.8 percent.
Around 800,000 homes built in the past four years remain unsold, according to Bloomberg calculations based on data from the Housing Ministry and Sociedad de Tasacion SA, a real estate valuation company. Cesar Oteiza, director of operations at Idealista.com property web site, says there may also be as many as 300,000 second-hand homes for sale.
Luis de Guindos, chairman of Lehman Brothers for Spain and Portugal, says housing starts will collapse this year, with builders breaking ground on 200,000 new homes after 760,000 last year.
Real estate company Inmobiliaria Colonial SA was suspended from trading in Madrid for the eighth time this year today. The company has lost three quarters of its market value in six months as sales dried up and banks called in loans to its biggest shareholders.