MADRID
Spain's economic woes deepened alarmingly Friday as the government revealed that unemployment rising to near 25 percent, a day after a credit ratings agency downgraded the country's debt rating and warned it faced an uphill battle to get a grip on its finances.
Official figures showed that unemployment has jumped to 24.4 percent in the first quarter of 2012 -- the highest rate in the 17-country eurozone -- from 22.9 percent in the fourth quarter of 2011. The data show that another 365,900 people lost their jobs in the first three months of the year, taking the total unemployed to 5.6 million. The rate for people under 25 year is now 52 percent, up from 48.5 percent in the previous quarter.
"The figures are terrible for everyone and terrible for the government," Foreign Minister Jose Manuel Garcia-Margallo told Spanish National Radio. "Spain is in a crisis of enormous magnitude."
The total figure for people unemployed increased by 729,400 compared to the first quarter of 2011. The National Statistics Institute said Spain now has 1.7 million households in which no one has work.
The figures were another blow to the conservative government after Standard & Poor's late Thursday became the first of the three leading credit rating agencies to strip Spain of an A rating. It cited a worsening budget deficit, worries over the banking system and poor economic prospects for its decision to reduce the rating by two notches from A to BBB+.
S&P even warned that a further downgrade is possible as it left its outlook assessment on Spain at "negative."
Spain, the eurozone's fourth-largest economy, is just now just three notches above so-called junk status. Earlier this week, the Bank of Spain confirmed that the country had entered a technical recession -- two consecutive quarters of negative growth.
The country's economic problems have become the epicenter Europe's debt crisis in recent weeks as investors worry over Spain's ability to push through austerity measures and reforms at a time of recession and mass unemployment.
The cuts are aimed principally at slashing the government's deficit from 8.5 percent of economic output to the maximum level set by the European Union of 3 percent by 2013.
With the economy shrinking and the population restless, there are concerns that the government will not meet its targets and will be forced into seeking a financial rescue as Greece, Ireland and Portugal have done before.
The difference is that Spain's economy is double the size of the combined economies of the three countries that have already been bailed out. The other eurozone countries would struggle to muster enough money to rescue it.
Even if the eurozone finds the financial capacity to bail out Spain, economists warn the crisis could then envelop Italy, the eurozone's third-largest economy, which owes around (EURO)1.9 trillion ($2.5 trillion), more than double Spain's (EURO)734 billion.
Alfredo Pastor, an economics professor at Spain's IESE Business School, said the latest round of bad news came as no surprise given Spain's recession and that times will get worse before they get better. Labor reforms enacted by the government to loosen up rigid laws on hiring and firing will not make a dent in the jobless rate until next year. Even so, they are not enough to right the economy.
"In fact, Spain needs deeper reforms which are effective and productivity-enhancing," Pastor said. "In the current recession, as well as labor reform, the government needs to take other measures, such as helping credit flow to business in order to help create jobs."
Pastor also said a jobless rate of nearly 25 percent will inevitably increase Spain's deficit and government debt.
The mood among Spanish people out on the streets Friday was downcast.
"The situation is very bad. There's no work," said Enrique Sebastian,a 48-year-old unemployed surgery room assistant as he left one of Madrid's unemployment offices.
"The only future I see is one with wages of (EURO)400 ($530) a month for eight-hour days. And that's if you can find it," said Sebastian.
Graphic artist Fernando Garcia, 41, said he had just been laid off again.
"I've been on short-term contracts for a long time without any type of stability," he said. "I work a few months and then I have to go on the dole. But I have to be optimistic. I have no choice."
Markets in Spain initially reacted negatively to the twin news but soon recovered their poise alongside the rest of Europe as the downgrade was largely viewed as a belated acknowledgment of the market realities.
The main IBEX index, having fallen more than 1 percent earlier, recovered a bit and was down 0.3 percent at midday. The yield on the country's ten-year bond fell from very close to 6 percent to 5.9. Still, that was a rise of 11 basis points for the day.
Though the yield is below the 7 percent rate widely considered unsustainable in the long-run, it's edged up over the past month from below 5 percent in a clear sign that investors are getting increasingly fidgety over Spain's economic prospects.
"Some will blame the downgrade for causing market unrest; instead it is merely a symptom of much deeper problems endemic in the Spanish economy and banking system," said Sony Kapoor, managing director of Re-Define, an economic think-tank. "More than anything else, this is the result of the deeply flawed and self-defeating approach to the euro crisis that EU leaders have embarked on."
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Pylas contributed from London. Daniel Woolls and Jorge Sainz contributed from Madrid
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