Spain prices, unemployment soar; retail sales sink

 

Weak jobs data, sliding retail sales and higher than expected inflation confirmed Spain's economic recovery is faltering as the government focuses on cutting spending to rein in the euro zone's third largest deficit

Unemployment, which is more than double the European Union average, rose to a 14-year high of 21.3%, or 4.9 million people, in the first quarter, the National Statistics Institute (INE) said on Friday.

Retail sales, meanwhile, posted their sharpest decline for more than two years in March, and in April consumer prices rose faster than at time since October 2008, pointing to a further loss of momentum for a stagnant economy already beset by inflationary pressures and depressed consumer sentiment.

Persistently weak growth will in turn undermine government efforts to tame the deficit and try to persuade investors Spain will not follow Greece, Ireland and Portugal into a bailout.

"These data show that Spain is going to take time to recover," economist at Banco Sabadell, Juan Rodriguez Rey, said.

"Domestic consumption is a big part of gross domestic product (GDP) in Spain, with the unemployment rate we have, low consumption affects output and GDP and the economic recovery,"

The premium investors demand to hold Spanish over German debt slid to 207 basis points on Friday, the lowest level in two weeks and down around 3 bps on the day.

The government says unemployment will end the year at an average of 19.8% as a return to growth begins to create net jobs in the second half of 2010.

But the Bank of Spain is less optimistic, seeing the rate at over 20% into next year. The jobless rate was 20.3% in the fourth quarter last year."Hopefully this marks the peak of unemployment. I don't think the situation will improve dramatically in the next few quarters but it should at least stabilise," economist at Unicredit Tullia Bucco said.

BURST BUBBLE

Spain's economy tipped into recession mid-2008 after a burst property bubble hit domestic demand and sent the key construction and services sectors tumbling and prompting mass layoffs, more than doubling the number of people out of work.

Despite emerging from its slump at the start of 2010, the fallout from the collapsed building industry and persistent consumer caution has left the economy near stagnant, and it is likely to remain depressed due to a continuing credit crunch.

March retail sales fell 8.6% year-on-year on a calendar-adjusted basis in March, after an adjusted fall of 4.3% in February, official data showed, the sharpest decline since February 2009 and the ninth consecutive month of falls.

Spain's EU-harmonised consumer prices index rose to 3.5% year on year in April, preliminary data showed, the highest level since October 2008 and compared to 3.3% year-on-year in March.

The inflation level was mainly due to rising prices of travel, food and non-alcoholic drink, INE said.

The preliminary national consumer price index rose 3.8% on an annual basis compared to 3.6% a month earlier.

INE reports final consumer price data May 12.

Spain's current account deficit in the two months to February expanded slightly to 12 billion euros from 11.5 billion euros a year earlier, the Bank of Spain said on Friday. The current account deficit for February, one of the largest amongst developed nations, fell to 5.4 billion euros from 6.2 billion euros in the same month last year.

The fall was due mainly to a decline in the primary income deficit - the difference between the money paid abroad and money received - to 1.3 billion euros from 2.0 billion euros, the central bank said.

The trade deficit dropped slightly to 2.9 billion euros from 3 billion euros as exports rose 21% while imports jumped 16.7%.