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Spanish finance minister Pedro Solbes cut his forecast for economic growth this year as the global credit shortage exacerbates the country's housing slump.

The Spanish economy will expand 2.3 percent this year and next, Solbes said at a press conference in Madrid. That compares with the 3.1 percent expansion he predicted for 2008 in December. The economy grew 3.8 percent last year.

“The real estate slowdown is proving more intense than originally foreseen,'' Solbes said. There is “a significant weakening in economic activity.''

The unemployment rate in Spain, once an engine of European job creation, jumped the most in 15 years in the first quarter as 2.7 percent of construction workers lost their jobs. Home sales fell by more than a quarter in the year to January as prices softened and banks tightened lending to potential buyers.

“Spain's getting hit from all sides,'' Dominic Bryant, an economist at BNP Paribas SA in London, said. “This is still the early stages, and unemployment is picking up pretty quickly already.''

Unemployment Rising

The jobless rate rose to 9.6 percent from 8.6 percent in the fourth quarter, the Madrid-based National Statistics Office said today. The last time the rate increased that much was in the first quarter of 1993, when Spain most recently slipped into recession. The number of unemployed rose 13 percent, or 246,000, to 2.1 million people, the report said.

Solbes forecast the economy will add 200,000 jobs this year while the unemployment rate will finish the year at 9.8 percent due to an increase in the number of workers. The jobless rate will reach 10 percent next year, he added.

“This is brutal,'' said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid. “That this can happen while the economy is still growing around 2.5 percent is really worrying.''

The government's forecast compares with the Bank of Spain's prediction that growth will slow to 2.4 percent this year. The International Monetary Fund says the growth rate will be 1.8 percent, less than half of last year's pace.

The yield on Spain's benchmark government bond fell 1 basis point to 4.45 percent and the price rose, the only of Europe's benchmark government bonds to advance today cash advance payday loans.

Construction Jobs

Europe's fifth-biggest economy created more than half of all new jobs in the euro region in the five years through 2006 as record low interest rates and surging construction fueled a virtuous circle of consumption and hiring. Now that process has gone into reverse as banks shut off funding to homebuyers and a glut of properties is depressing home prices. Mortgage lending fell 28 percent in the year to January.

“This is a credit crunch,'' Angel Berges, managing director of Analistas Financieros Internacionales told an April 7 construction industry conference. “This is a result of the drought that Spanish banks are facing in the international markets.''

Spain's immigrant population is suffering the most from the economic slowdown. The number of unemployed immigrants jumped 24 percent in the quarter to 504,700 while the unemployment rate for that group rose to 15 percent from 12 percent. Even so, another 519,100 foreigners of working-age arrived in Spain in the past year.

House Prices

Real home prices in Spain declined for the first time in a decade in the first quarter weighed down by a glut in supply. Around 800,000 homes built in the past four years remain unsold, according to Bloomberg calculations based on data from the Housing Ministry and Sociedad de Tasacion SA, a real estate valuation company. Cesar Oteiza, director of operations at Idealista.com property web site, says there may also be as many as 300,000 second-hand homes for sale.

Luis de Guindos, chairman of Lehman Brothers for Spain and Portugal, says housing starts will collapse this year, with builders breaking ground on 200,000 new homes after 760,000 last year.

Solbes said there will be a “very substantial reduction'' in house-building this year to return the industry to “a more normal pace.'' The government has said there is demand for around 400,000 new homes a year in Spain.

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