Spain unemployment, inflation rise

[Pastor Dale Morgan]

Perilous Times

Spain unemployment, inflation rise

April 29, 2011 - 11:59PM

Spanish unemployment, officially the highest in the European Union, is at a 14-year peak latest data show, just as the government attacks illegal jobs which experts say cast doubt on the figures.

The statistics agency Ine said on Friday that the unemployment rate had risen to 21.29 percent, the highest level since the beginning of 1997.

But also on Friday the government was to approve a raft of measures to attack undeclared or so-called "black" unemployment.

Some estimates say this accounts for about 20 percent of gross domestic product and some experts say it makes a nonsense of the unemployment data.

Spain has the highest unemployment rates in the European Union and in the area covered by the Organisation for Economic Cooperation and Development, with figures twice the averages.

A study by the Foundation of Spanish Savings Banks (Funcas) published in March estimated that the undeclared market accounted for four million jobs and 17.0 percent of GDP.

Budget ministry experts estimated that it accounted for 23.3 percent of GDP, representing 245 billion euros ($363 billion) of which 161.5 billion euros was in the form of tax fraud.

At IESE Business School, economist Javier Diaz-Gimenez said: "The size of the underground economy in Spain is among the biggest in the OECD with Portugal, Greece and Italy." He said this occurred because controls and penalties were weak, and labour charges were high.

"Clearly, with so much underground economic activity, all the (official) figures are false."

He suggested that this would "remove two, three or four points from the unemployment rate."

At Universite Complutense de Madrid, economics professor Carlos Sebastian said: "The unemployment rate is surely not 20 percent."

He added that "I would say that it is between 10 and 15 percent."

This is advanced as one reason why unemployment does not spark widespread protests even though, officially, in 1.39 million homes, every member of the family of working age is unemployed.

The picture is difficult to see, because people who work illegally may also have a legal job or be registered as unemployed.

In the European Union, official unemployment data covers people who are registered as unemployed, who are available to work and who do not work for more than a few hours per week.

The figures were published against a background of severe strains on the Spanish economy arising from depressed economic activity and high public deficits and debt.

At the end of March the total of people registered as unemployed approached five million, at 4.91 million, Ine said.

Inflation in Spain also rose in April to 3.5 percent from 3.3 percent in March, the highest figure since October 2008, Ine said.

Against a background of high energy prices, the Bank of Spain recently raised its outlook for inflation to 2.9 percent for 2011 from 1.7 percent foreseen previously.

Inflationary pressures should ease later in the year and inflation in 2012 would be 1.5 percent, it said.

The government recently raised its forecast for the unemployment rate this year to 19.8 percent from 19.3 percent, but expects it to fall from later this year to 18.5 percent next year, 17.3 percent in 2013 and 16.0 percent in 2014.

The economy contracted by 3.8 percent in 2009 and shrank slightly by 0.1 percent last year. The government expects growth of 1.3 percent this year but the International Monetary Fund has forecast growth of 0.6 percent.

The country is now fighting to avoid needing a debt rescue and has announced deep spending cuts, and structural reforms of the economy including privatisations and a relaxation of job-protection laws.