Spanish Economy Crumbles: Unemployment Nearly 25%
In a week that Spain can't wait to end, the country was just hit with the bad news bears Trifecta, starting with the Real Madrid loss, following with the second S&P downgrade of Spain's credit rating for the year last night (or is that now SBBB+ain?), and concluding with economic data released this morning which showed that the economy is in a free fall that is approaching that of Greece, after retail sales fell for the 21st consecutive month, while Q1 unemployment soared to, drumroll please, one quarter of the working population or 24.44% to be specific, trouncing consensus estimates of 23.8%, and up nearly 2% from the 22.85% as of December 31. Which likely means that the real unemployment is far higher, and confirms not only that the economy is in free fall mode, but that Moody's, which delayed its downgrade of the country's banks to May, will proceed shortly.
The BBG chart below can only invoke laughter.
And the same from Reuters:
Spain's unemployment rate shot up to 24 percent in the first quarter, the highest level since the early 1990s and one of the worst jobless figures in the world. Retail sales slumped for the twenty-first consecutive month.
"The figures are terrible for everyone and terrible for the government... Spain is in a crisis of huge proportions," Foreign Minister Jose Manuel Garcia-Margallo said in a radio interview.
Spain has slipped into its second recession in 3 years putting it back in the center of the Euro Zone debt crisis storm.
The government has already rescued a number of banks that were too exposed to a decade-long construction boom that crashed in 2008, and investors fear vulnerable lenders will be hit by another wave of loan defaults due to the slowing economy.
There is hope that things will change...
The government expects labor reforms passed in the first quarter that make it cheaper for firms to hire and fire to produce results next year. Many firms have taken advantage of new rules to lay off more staff.
"It's a very challenging situation. I don't think that the banks are cornered yet, but the government must come out soon to say how they will address them," said Gilles Moec, an economist with Deutsche Bank.
The downgrade put Spain's credit rating at the same level as Italy. S&P now has Spain on a BBB+ rating, which means "adequate payment capacity" and is only a few notches above a junk rating. Fitch and Moody's still rate Spain's sovereign with a "strong payment capacity".
S&P said it was likely the government would have to put more funds into banks and called on euro zone countries to better manage the sovereign debt crisis.
The government is considering whether to create a holding company for the banks' toxic real estate assets as investors have not been convinced by three rounds of clean-ups and consolidations in the financial sector.
But, as a reminder, there was hope that things in the US would also turn better nearly 4 years ago.