Tags: Spain | Joblessness | Falls | Inflation | Rises

Spain's Jobless Rate Unexpectedly Falls, Inflation Rises

Friday, 29 Oct 2010 09:51 AM

Spain’s jobless rate, the highest in Europe, unexpectedly fell for the first time in more than three years and an increase in sales tax aimed at curbing the budget deficit pushed up the inflation rate to the highest in two years.

The unemployment rate fell to 19.8 percent in the third quarter, from 20.1 percent in the previous three months, the National Statistics Institute said today. Economists expected the rate to remain unchanged, according to the median forecast in a Bloomberg survey. Consumer prices rose 2.2 percent in October from a year earlier, accelerating from 2.1 percent increase the previous month, the Madrid-based institute said.

Spain emerged from the worst recession in six decades in the first half, led by a surge in exports. Falling unemployment will start to ease pressure on the third-largest budget deficit in the euro region, and may help the Socialist government, whose popularity has slumped in opinion polls.

The unemployment rate fell as the active population -- workers and people looking for work -- was unchanged in the quarter, after growing in the first two quarters of the year, the statistics institute said.

“The pace of job destruction has slowed, but there’s still a long way to go before we can think about a recovery in employment in Spain,” said Estefania Ponte, the Madrid-based head of research at Cortal Consors, who correctly forecast the third-quarter jobless rate.

The extra yield investors demand to hold Spanish 10-year bonds instead of German equivalents rose to 165.6 basis points from 162.7 basis points yesterday. The spread has fallen from a euro-era high of 221 basis points in June.

Subsidies

Around 75 percent of the unemployed in Spain receive some kind of government subsidy, according to Labor Ministry data. That helped swell the budget deficit to 11.1 percent of gross domestic product last year, the third-largest in the region. Aiming to cut that by half in two years, Spain is implementing the deepest fiscal cuts in three decades.

Those measures, including a public wage cut and pension freeze, may undermine the recovery and the government cut its own GDP forecast for next year to 1.3 percent from 1.8 percent to reflect the impact of the budget cuts. Bank of Spain Governor Miguel Angel Fernandez Ordonez said on Oct. 5 that the economy showed a “clear weakening” in the third quarter. The central bank is due to publish its third-quarter GDP estimate next week.

Socialist Prime Minister Jose Luis Rodriguez Zapatero, a union member who was re-elected in 2008 on pledges of full employment, has seen his popularity decline in the polls. The opposition People’s Party has a 13.4 point lead over the ruling party, a poll published by Publico newspaper showed on Oct. 11.

The austerity measures also included an increase in value- added tax on July 1, which sent prices higher even as weak demand meant retail sales fell in September for a third month. In August, the higher tax rate accounted for more than half of the 1.8 percent inflation rate, the institute said on Oct. 14.

The statistics office will publish final inflation data with a full breakdown on Nov. 12.

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Spain s jobless rate, the highest in Europe, unexpectedly fell for the first time in more than three years and an increase in sales tax aimed at curbing the budget deficit pushed up the inflation rate to the highest in two years. The unemployment rate fell to 19.8 percent...
Spain,Joblessness,Falls,Inflation,Rises
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2010-51-29
Friday, 29 Oct 2010 09:51 AM
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