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Spain unemployment nears a 12 year high

Source: Reuters - Fri 29th Jan 2010

Spain's unemployment rate hit a nearly 12-year high of 18.8 percent in the fourth quarter of 2009 and is expected to climb further this year as billions of euros in anti-crisis spending winds down.

The unemployment data for the last three months of last year reported on Friday was up from 17.9 percent in the third quarter and compared to 18.5 percent expected by economists polled by Reuters.

The number of Spaniards out of work rose by 203,200 to 4.3 million people in the same period, the data from the National Statistics Institute showed.

Joblessness is now nearing the 19.4 percent reached in 1998, a figure analysts expect to be surpassed.

"The rate is going to increase to 20 pct but not that fast. The pace of the increase will not be as fast as last year," said Giada Gianni of Citigroup.

The higher-than-expected figure came ahead of a government plan to slash spending, to be detailed later on Friday, to bring the public sector deficit down to 3 percent of gross domestic product by 2013.

Separately, flash consumer price data showed European-Union harmonised inflation was 1.1 percent in January from a year earlier, the third consecutive positive figure after high energy prices in 2008 lead to 8 straight months of falling prices.

Sluggish economic growth will keep Spanish price rises down over the next few months, though inflation pressures will return after the government introduces a 2-percent hike in value-added tax in July, analysts believe.

Spain's EU-harmonised figure comes just hours before inflation for the whole euro zone, with economists expecting prices to have risen 1.2 percent in January, up from 0.9 percent in December.

"Strong fuel prices in January have pushed inflation up on the previous month, but that has been offset by very high fuel prices in January of last year, so there have been some favourable base effects from that," said economist at RBS Nick Matthews.

"These figures are no surprise and are consistent with what is expected from the euro region flash later on today."

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