Eurozone fears fuelled as Spanish jobless rate soars

Spanish unemployment – already the highest in Europe – spiked up again yesterday, piling more pressure on the struggling Madrid government and sending investors scurrying for safety.

Official figures showed the number of jobless rose by 365,900 in the first three months of the year, taking headline unemployment to 24.4 per cent. Youth unemployment rose to 49.6 per cent.

Economists warned accelerating joblessness will undermine the government's efforts to slash Spain's deficit from 8.5 per cent of GDP to 5.3 per cent by the end of the year.

The dire employment figures followed a downgrade of Spain's sovereign debt by two notches late on Thursday by Standard & Poor's, with the credit rating agency citing the poor outlook for growth and rising public debt levels. The country's 10-year borrowing costs rose close to the 6 per cent danger zone yesterday.

Madrid will publish its official GDP figures for the first quarter of the year on Monday, but the Bank of Spain has already estimated that the economy shrank by 0.4 per cent over the three months, which would put the country firmly back in recession.

In further signs of intensifying eurozone financial stress, Italian borrowing costs also jumped yesterday, after Rome was forced to pay 5.84 per cent to sell €5.95bn (£4.85bn) worth of 10-year bonds, up from 5.24 per cent it paid in a similar auction last month.