Spain Recession Eases as Unemployment Drops From Record Level

 

Spain's recession eased in the second quarter, pushing unemployment down from its highest level in the country's democratic history and lending support to the government's prediction of an economic recovery in the second half of the year.

GDP fell 0.1% from Q1, when it declined 0.5%, the Madrid-based National Statistics Institute (INE) said today. That matched the Bank of Spain's estimate on July 23. Inflation in July was 1.8%, the INE said in a separate release.

Economy Minister Luis de Guindos said last week that the government must continue to overhaul the 4th-largest economy in the euro region to consolidate a "fragile" recovery. Four years of budget cuts have sapped domestic demand, hindering an exit from a slump triggered in 2008 by the end of a real-estate boom that lasted over a decade.

Cars will be among the first items Spanish consumers purchase as the economy recovers, Ramon Paredes, vice president at Volkswagen's Seat unit, said last month. Seat has lost the consumer sector of young adults looking to buy their first car due to Spain's record unemployment, he said. The jobless rate fell to 26.3% in Q2 from a record 27.2%, INE said on July 25.

"Difficult challenges remain ahead, the biggest of all is unemployment," de Guindos told lawmakers in Madrid on July 25, adding that the government will order an independent review of labor rules implemented in 2012. The nation needs to "deepen reforms" in order to avoid a relapse as happened in 2011 after a few quarters of growth, he said.

Economic Reforms

The Bank of Spain and the IMF have called on the government to take further steps to help companies cut payroll. ECB President Mario Draghi, who saved Spain from a full European bailout last year after it received EU aid for its banks, has repeatedly recommended "growth-friendly" policies that don't "unravel" the austerity steps that have been taken.

At 10.6%, Spain's budget deficit was the largest in the EU last year. The country has until 2016 to bring overspending back within the EU limit of 3% of output.