Weak growth in Spain not enough to cut unemployment: study

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Spain should see second-quarter growth of 0.3 percent, the same as the previous three months but not enough to curb the highest unemployment rate in the industrialised world, a study said Tuesday.

"The Spanish economy is slowly recovering, although we do not expect to see positive net job creation until the second half of 2011," the research department of Spain's BBVA bank said.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of the once-booming property market. It emerged with meagre growth in early 2010.

Economic output expanded 0.3 percent in the first three months of 2011 when compared to the previous quarter.

But the crisis has sent the unemployment rate soaring to 21.29 percent in the first quarter of 2011, the highest in the industrialised world, and has whipped up nationwide demonstrations against the government's austerity measures.

The government has forecast growth of 1.3 percent in 2011 and 2.3 percent in 2012.

But BBVA Research predicted figures of 0.9 percent this year and 1.6 percent next year, "enough to generate net jobs, but not enough to significantly reduce the unemployment rate, given a normal scenario for labour force performance."

For the April to June period, it forecast GDP growth of 0.3 percent.

This growth is "is still being shaped by a strong external demand and a weak domestic demand and that, given this sluggish rate of improvement, the Spanish economy remains unable to create employment."

But it said that "despite persistent tension in sovereign debt markets, the Spanish economy is in better shape than other European peripheral countries thanks to its overall compliance with the fiscal consolidation targets, the greater transparency of its public accounts and the effort to restructure the financial system, the labour market and the pension system."

Spain, with an economy the size of the Greek, Irish and Portuguese economies combined, has been battling to convince markets that it should not be lumped together with the three lame ducks now under EU and IMF rescue terms.

The government has enacted reforms to strengthen bank balance sheets, cut state spending, make it easier to hire and fire workers, lower the retirement age and sell off assets.

But BBVA Research warned that "although the fiscal target for Spain as a whole was met in 2010, the varying degrees of compliance among regions was worrying, since much of the 2011 deficit reduction target depends on them and their ability to reduce spending."

Figures released recently by the finance ministry showed only about half of Spain's 17 regions would post a first-quarter deficit within the limit set by the central government.

© 2011 AFP

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