Recession to leave a quarter of workers idle, BBVA says

The research department of BBVA believes that about a quarter of Spaniards will be out of a job this year and the next as the economy suffers another recession.

Unemployment in Spain at the end of last year stood at 22.8 percent, and in a presentation on Wednesday of its latest report on the Spanish economy, BBVA predicted the jobless rate would rise to 24.4 percent at the close of this year and 24.6 percent the following year. “Employment will shrink in 2012 and in the first half of 2013, giving rise to a pick-up in the jobless rate,” the report said.

Speaking in Congress, Prime Minister Mariano Rajoy on Wednesday was also gloomy about the prospects for the labor market this year. Referring to the unemployment rate at the end of 2011, Rajoy said: “Unfortunately, these figures are not going to get any better in the short term. And what’s more, they will get worse in 2012.”

The Cabinet is due on Friday to approve measures to overhaul the labor market in order to address the tendency in Spain for unemployment to shoot up during times of economic crisis.

Rajoy said the reforms would aim to make legislation governing the job market more flexible to allow companies to adapt to changing economic circumstances.

“Labor reform is very important to avoid the jobless rate moving above 20 percent every time there is a downturn in economic activity,” BBVA’s chief economist, Jorge Sicilia, said at Wednesday’s presentation.

BBVA researcher Rafael Doménech, who covers the Spanish economy, predicted the number of people out of work would hit a record 5.7 million, after ending 2011 at just under 5 million. He predicted the economy would hemorrhage jobs at a rate of 2,000 a day.

“In the short term, the new [labor reform] measures should allow adjustments to the length of the working day and wage flexibility,” the economist said. “In the long term, the reform should create stable and more productive jobs.”

BBVA expects GDP to contract 1.3 percent this year, compared with a contraction of 1.5 percent forecast by the Bank of Spain and 1.7 percent by the IMF. Thereafter, BBVA sees a modest recovery in 2013, with GDP expected to rise 0.6 percent. The IMF expects the recession to continue into next year when it sees output shrinking by 0.3 percent.

The one bright spot is the export sector, which alone is expected to recover the levels seen before the crisis.

BBVA believes the government will manage to reduce the shortfall in its finances to 3 percent of GDP in 2013 despite overshooting its targets the previous two year. The bank estimated the deficit last year at 8.2 percent and predicted it would narrow to 5.3 percent this year, compared with the official target of 4.4 percent. “An adjustment of this scope is more than sufficient,” Doménech said.

The bank said the government’s plan to raise a further 6.1 billion euros in taxes and cut spending by 8.9 billion was “credible.”