Spanish unemployment to decline further; look for hints of sustainable improvement

Given the strong economic momentum since the beginning of the year, favourable seasonal factors and, to a lesser extent, some measures implemented by the government since 2011, the Spanish unemployment rate is expected to have dropped to 23.1% from 23.8% in Q2. The details of the employment report (in particular the sector breakdown, participation rate and share of temp jobs) will be key to gauge the strength and the sustainability of the recovery. 

Indeed, around 40% of the decline in the unemployment rate from its peak of 26.9% in Q1 13 is due to a decline in the labour force (mostly reflecting a reduction in the working age population). On top of that, despite the government efforts to boost permanent jobs, the bulk of job creations since 2013 has remained in temporary contracts. Finally, job creations have been relatively concentrated on tourism-related services and administration services, with less employment growth in high-value added sectors.