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A crack in Spain’s stellar recovery?

Monthly unemployment in the eurozone’s fourth largest economy notched up its biggest rise since October 2015 last month, putting a dampener on the country’s impressive economic recovery which has pushed unemployment to its lowest since 2009.

Latest figures from the country’s labour ministry revealed a 57,000 jump in unemployment at the start of the year, slightly below a 60k forecast but a big leap from the more than 80k drop registered in December. The numbers are not seasonally adjusted.

Spain has made impressive inroads into reducing its double-digit unemployment levels which have consistently been the second highest in the eurozone after Greece.

The country’s jobless rate dropped to 18.63 per cent at the end of last year – the lowest in seven years – despite it not having a permanent government for the first 10 months of the year.

But the pace of Spain’s economic expansion is set to moderate with inflation more than doubling to hit 3 per cent in January. Without strong wage growth, the rising cost of living will keep a lid on consumer spending, warn economists.

Growth could also take a hit as a the newly re-appointed government of prime minister Mariano Rajoy will slam on the fiscal brakes this year, implementing 0.7 per cent of GDP in austerity measures to meet EU budget targets this year.

Fabio Balboni, European economist at HSBC, notes the Spanish economy has generated 1 million jobs in the last two years but productivity – a key measure for long-term prosperity – has lagged and even fallen negative on some measures.

“If [job creation slows], then GDP growth is likely to follow particularly if consumer confidence is affected”, said Mr Balboni.

He notes that a planned 8 per cent rise in the country’s national minimum wage could also hit employment levels, particularly in Spain’s large temporary employment sector.

“A slowdown in job creation could also exacerbate the social tensions, with still about 1.8 million people that have been unemployed for over two years”, he adds.

First chart via Bloomberg

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