MercoPress. South Atlantic News Agency

Spain back in recession and already high unemployment expected to increase

The central bank first quarter report also points out to a significant decline in unit labour costs

Spain's jobs-scarce economy plunged back into recession in the first quarter of 2012 as employment slumped even further, the Bank of Spain said on Monday. Barely two years after emerging from the last downturn Spain slid into recession again with two consecutive quarters of economic contraction the central bank said in a report.

GDP fell by an estimated 0.4% in the first quarter of 2012 after a 0.3 per cent decline in the last three months of 2011, the bank said.

Spain, whose unemployment rate at the end of 2011 was already the highest in the industrialized world at 22.85% overall and nearly 50% for the young, suffered a further jobs slump.

“Employment fell again, sharply, with an estimated year-on-year decline of four per cent,” the report said, noting also a “significant” decline in unit labor costs.

The Spanish government forecasts the jobless rate will rise to 24.3% this year as the sagging economy struggles to absorb millions of jobs destroyed in the collapse of a property boom in 2008.

The European Central Bank had helped to ease market tensions, Spain's bank said, alluding to the ECB decision to extend more than 1 trillion Euros in low-interest, three-year loans to the region's banks.

New tensions pushed the borrowing rate on Spain's benchmark ten-year government bonds above a symbolic 6% threshold, the central bank noted. Investors in Spanish ten-year bonds demanded an additional return of about 440 basis points when compared to German bonds, it said.

At the same time, the stock market has slumped by about 20% since the beginning of the year.