Unemployment soars over 20 percent in Spain, adding to debt fears about eurozone nations

MADRID (AP) — Spain's jobless rate has risen over 20 percent for the first time since 1997, the government said Friday — more dismal news for a recession-plagued economy that is being dragged into Europe's debt crisis.

The National Statistics Institute said the rate rose 1.22 percentage points in the first quarter to 20.05 percent.

While other major economies in Europe and elsewhere have posted at least tepid growth as they crawl out of recession, the eurozone's fourth-largest economy is still contracting after the collapse of a construction boom that had fueled years of expansion.

The agency said at the end of March, there were over 4.6 million people out of work in the country. The jobless rate is the highest since the last quarter of 1997, when it stood at 20.11 percent.

Since Spain slipped into recession in 2008, the rate has roughly doubled, a dramatic development for a country that had been one of Europe's top job-creators.

Now, with the recession forcing the government to spend heavily on joblessness benefits and stimulus measures, the deficit is soaring, triggering worries among investors that Spain might be in danger of a debt crisis like the one that has engulfed Greece. Ratings agency Standard & Poor's downgraded Spanish debt this week.

Finance Minister Elena Salgado called Friday's figure "very high." She noted, however, that fewer jobs are being lost than last year — about 290,000 in the quarter that just ended, compared to a stunning 800,000 in the first quarter of 2009.

"A much lower number of jobs has been lost, but that does not mask the gravity of these figures or the government's determination to do what is necessary to create jobs," she told reporters.

Salgado later announced the government had decided to scrap 32 ministerial departments and merge or eliminate 38 state-owned companies to save money as part of deficit-cutting austerity measures. With this, the government will save euro16 million ($21 million).

Outside an unemployment office in Madrid, Francisco Javier Moreno, a middle-aged man who has been jobless for four months, said things in Spain couldn't be worse.

"Everyone I know is unemployed, on the verge of losing their job or their benefits are running out. The truth is the situation is very bad," he told AP Television News.

Spain, once among Europe's largest creators of jobs and boasting more than a decade of solid GDP growth, is now suffering its worst recession in decades. It has been in recession since the third quarter of 2008 after the collapse of a boom fueled by residential construction and credit-fueled consumer spending. The building sector and related industries had accounted for nearly 20 percent of the country's economic output.

Immigrant workers provided a lot of that manpower. The jobless rate among foreigners living in Spain is now almost 31 percent.

Last year the economy contracted 3.6 percent. The government's official forecast is that the economy will post at least modest growth in the first quarter compared to the last three months of 2009, and contract 0.3 percent on the year, then grow 1.8 percent in 2011.

But the country's central bank has predicted a drop of 0.4 percent this year and expansion of just 0.8 percent next year. The European Commission has also said the government's numbers are optimistic.

Standard & Poor's cited weak prospects for growth in the Spanish economy when it downgraded Spanish debt from AA+ to AA this week. Last year the government ran a deficit equivalent to 11.2 percent of GDP.

Friday's unemployment figure was actually released by mistake Tuesday, when the statistics agency posted it online in error, then declined to confirm it. Prime Minister Jose Luis Rodriguez Zapatero responded that day saying the jobless rate was now peaking and will start to go down as the economy begins to grow.