More grim Spain data, slowdown shocks economists

By Jason Webb

MADRID (Reuters) - Spanish industrial output fell and unemployment rose according to the latest round of bleak government data on Tuesday, prompting economists to express surprise at the speed of the economy's deterioration.

Industrial production contracted by 2.6 percent in March in seasonally-adjusted terms, continuing a trend which has seen adjusted output decline year-on-year in 3 out of the past 5 months.

The government had hoped Spain's relatively small manufacturing sector would take up some of the slack following a slump in the construction sector, which fuelled an economic boom for a decade but is now bleeding jobs.

The number of registered unemployed rose again in April, up 37,542, meaning the number of workers out of jobs has risen to 2.34 million, up 15 percent over 12 months.

Economists said they were taken aback by the speed with which Spain, which grew by an average 3.7 percent a year in the decade to 2007, has fallen into economic decline.

They pointed to the economy's over-reliance on construction, which fed on an explosion of mortgage credit which helped house prices triple in a decade, leaving them up to 20 percent overvalued according to the International Monetary Fund.

These circumstances left Spain especially exposed to the global credit crunch.

"The accumulation of negative data is surprising," said Jose Luis Martinez from Citibank, who expected economic growth to slow sharply to around 2 percent from 3.8 percent last year and saw further downside risks.