Spain's jobless rate rose above 20 percent again in the last quarter of 2010 and hit its highest rate since mid-1997, more than double the European Union average and with little to suggest it will fall sharply soon.
Unemployment remains Spain's key concern and with weak growth prospects, especially consumer spending, it is likely to stick close to 20 percent all year, economists said.
"The problem now is that household disposable income is collapsing, and the corporate balance sheet isn't in a very healthy position either. In this environment you would expect the unemployment rate to continue high, or in fact rise. Spain's problems really aren't going away," said David Owen, an economist at Jefferies.
Owen said that if the trend continues, forecasters will be revising down their estimates for GDP growth, and raising their estimates for government debt to GDP. Unemployment rose to 20.3 percent in the fourth quarter, rising from 19.8 percent the previous quarter, and coming in even worse than economists' forecasts of 19.9 percent. The rate had fallen in the third quarter for the first time since 2007, but was above 20 percent in the first half of last year.
The number of jobless rose to 4.7 million people, with most job losses coming in the services and construction sectors. But the data also showed that the rise in unemployment was more a result of people joining the labor force rather than a jump in the number of people being laid off.
On Friday, Spain's cabinet is due to approve pension reform that will see the retirement age rise to 67, in the government's latest move to assure investors it can revive a flagging economy.
But with bank and indebted companies still restructuring, unemployment will likely stay at high levels through the year.
On Tuesday, media group Prisa, which owns the newspaper El Pais, said it would cut around 2,500 jobs worldwide, while Spain's ailing savings banks sector should cut staff levels by abound 15 percent on average, according to the Bank of Spain.
Spain's employment picture contrasts starkly with that of Germany, whose economy is creating jobs at a decent clip.
Other economists said the underlying data showed more of a trend towards flattening out.
"Looking closely at the survey's details, the picture is not as worrying as the headline may suggest. The increase in the unemployment rate is mainly explained by a stabilization of the labor force rather than a spike in the number of the unemployed," said Tullia Bucco at UniCredit.
She said that the high rate of job losses previously seen was likely over.
The government doesn't expect the struggling economy to begin creating net jobs until the second half of 2011, and official forecasts put unemployment at an average of 19.3 percent this year.
Spain passed labor reform in September aimed at cutting the costs of firing workers, simplifying contracts and promoting youth employment, where the jobless rate is over 40 percent.
However, further changes to the reform are expected in the first quarter after markets and analysts were unimpressed by the first round of steps.
Work is ongoing to change the collective bargaining process, whereby workers' representatives for large companies or entire sectors reach joint agreements on wages and labor conditions.
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