Spain's jobless rate drops for first time in three years

29th October 2010, Comments 0 comments

Spain's unemployment rate fell below 20 percent in the third quarter, its first decline in three years as the service sector created jobs, the national statistics institute said Friday.

The jobless rate dipped to 19.79 percent in the July-September period, down from 20.09 percent in the previous three months, still the highest level in the 16-nation eurozone, it said in a statement.

Spain's unemployment rate had risen steadily since it dipped to 7.95 percent in the second quarter of 2007, which was its lowest level since the country returned to democracy following the death of dictator Franscisco Franco in 1975.

The increase was driven by the collapse of a labour intensive property boom.

The high unemployment rate has added to the government's social welfare bill as dole payments have soared at a time when it is seeking to slash a yawning public deficit that has rattled investors.

Earlier this year, Prime Minister Jose Luis Rodriguez Zapatero introduced a hotly contested labour market reform which cut the country's high cost of firing workers and gives companies more flexibility to reduce working hours and staff levels in economic downturns -- changes that he argued would boost job creation.

But despite the reforms, which were backed by the International Monetary Fund, the government last month raised its forecast for the jobless rate for next year to 19.3 percent from a previous estimate of 18.9 percent.

The Spanish economy, Europe's fifth-largest, emerged from the recession it entered during the second half of 2008 with tepid growth of just 0.1 percent in the first quarter and 0.2 percent in the second.

The economic downturn transformed a government surplus to a public deficit of 11.1 percent of gross domestic product last year, the third highest in the eurozone after Greece and Ireland.

Earlier this month, Bank of Spain governor Miguel Angel Fernandez Ordonez said the economy showed a "clear weakening" in the third quarter.

The national statistics institute is due to publish provisional figures for third quarter GDP on November 11.

The IMF predicts the Spanish economy will shrink by 0.3 percent this year and grow by just 0.7 percent in 2011.

© 2010 AFP

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