Spain ups retirement age as unemployment soars

 
City A.M. Reporter
Spain's cabinet is to approve an increase in the retirement age today, raising it to one of the highest levels in Europe, to reassure investors it can tackle economic reform.

The government reached a deal in principle with unions under which most Spaniards will retire at 67 rather than 65 at present yesterday.

While the reforms will have no effect on the budget before 2015, they mark progress in restructuring an economy with the highest unemployment rate in the euro zone and weak growth prospects.

Spain's jobless rate rose above 20 per cent again in the last quarter of 2010 and hit its highest rate since mid-1997.

It now stands at more than double the European Union average.

Unemployment remains Spain's key concern and with weak growth prospects, especially consumer spending, it is likely to stick close to 20 per cent all year, economists said.

"The problem now is that household disposable income is collapsing, and the corporate balance sheet isn't in a very healthy position either.

"In this environment you would expect the unemployment rate to continue high, or in fact rise. Spain's problems really aren't going away," said David Owen, an economist at Jefferies.

Owen said that if the trend continues, forecasters will be revising down their estimates for GDP growth, and raising their estimates for government debt to GDP.

Unemployment rose to 20.3 per cent in the fourth quarter, rising from 19.8 per cent the previous quarter, and coming in even worse than economists' forecasts of 19.9 per cent.

The rate had fallen in the third quarter for the first time since 2007, but was above 20 per cent in the first half of last year.

The number of jobless rose to 4.7 million people.

Prime Minister Jose Luis Rodriguez Zapatero is under pressure to show investors he is committed to introducing structural reforms and cutting a public deficit that totalled just over nine per cent of gross domestic product (GDP) in 2010.

It is hoped the retirement age reform will prevent Spain from being forced into a bailout like Ireland and Greece.