Spain’s unemployment in Q4 increased to 13.9% from 11.3% in Q3. Put in perspective this level is nearly double the average EU level; for example the UK reported on Wednesday its highest unemployment number since 1997 that came in at 6.1%. Spain’s level now accounts for the lions-share of euro region’s change in joblessness, per Eurostat.
And the trend does not look to be turning around anytime soon—the Spanish government said it expects the jobless rate to rise to 16% this year, which could be a conservative estimate as the ESADE business school predicts 20%.
The numbers are reflecting reality. Spain is transitioning from a decade-long boom to bust as a result of the leverage cycle finding her dark side. In particular, Spain’s housing industry, which fueled much of the country’s prosperity, is now being turned on its head as prices have depreciate precipitously. As it relates to unemployment, many of the unskilled construction workers that fed the boom are now out on the street, with companies across all industries cutting jobs. Nissan Motor Co. announced it would cut 38% of its workforce.
The government predicts that GDP will contract by 1.6% this year, and the budget deficit will soar to 5.8% of GDP, double the EU’s deficit target range of less than 3%. We think that government estimate is optimistic.