Spanish Unemployment Rate Drops below 20% Mark
October 29th, 2010
Spain’s unemployment rate unexpectedly fell in the last quarter, while an increase in sales tax aimed at curbing the budget deficit pushed up the inflation rate to its highest level in two years, the National Statistics Institute said today.
The unemployment rate fell to 19.8 percent in the third quarter, from 20.1 percent in the previous three months. Economists had expected the rate to remain unchanged. 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 of this year, led by a surge in exports. Falling unemployment will also 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 full 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.
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. 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, meant that 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.
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 main opposition party has a 13.4 point lead over the ruling party, according to recent polls.
The austerity measures also included an increase in VAT from July, which sent prices higher. In August, the higher tax rate accounted for more than half of the 1.8 percent inflation rate. The statistics office will publish final inflation data with a full breakdown on November 12th.
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