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Hole in Spanish economy gets bigger

Spain's unemployment rose to 24.4% in the first quarter - compared with 22.9% in the fourth quarter - and more than half of people under 25 are jobless.

The bleak employment news came a day after ratings agency Standard & Poor's downgraded the country's debt.

The Spanish economy is in recession for the second time in three years as the damage from a housing bust persists. Repossessions are rising, Spain's banks are in worse financial shape and the government's deficit is hitting worrisome levels.

The first-quarter employment data showed that 365,900 people lost their jobs, bringing the number of unemployed Spaniards to 5.6 million. The unemployment rate for people under 25 climbed to 52%, up from 48.5% in the previous quarter.

"The figures are terrible for everyone and terrible for the government," foreign minister Jose Manuel Garcia-Margallo said. "Spain is in a crisis of enormous magnitude."

The total number of unemployed increased by 729,400 compared with the first quarter of 2011. The National Statistics Institute said yesterday that Spain now had 1.7 million households in which no-one worked.

The figures were another blow to the conservative government of prime minister Mariano Rajoy after Standard & Poor's became the first of the three leading credit rating agencies to strip Spain of an A rating. It cited a worsening budget deficit, worries over the banking system, and poor economic prospects for its decision to reduce the rating by two notches from A to BBB+. S&P even warned that a further downgrade is possible as it left its outlook assessment on Spain at "negative".

Spain, the eurozone's fourth-largest economy, is just now just three notches above so-called junk status. Earlier this week, the Bank of Spain confirmed that the country had entered a technical recession - two consecutive quarters of negative growth.

The country's economic problems have become the epicentre of Europe's debt crisis in recent weeks as investors worry over Spain's ability to push through austerity measures and reforms at a time of recession and mass unemployment. The cuts are aimed principally at slashing the government's deficit from 8.5% of economic output to the maximum level set by the European Union of 3% by 2013. For this year the goal is 5.3%.

With the economy shrinking and the population restless, there are concerns that the government will not meet its targets and will be forced to seek a financial rescue as Greece, Ireland and Portugal have done.


From Belfast Telegraph