MADRID (Reuters) - Spain's strongest spell of job creation in seven years is fuelling hopes unemployment will keep receding, although an abundance of temporary contracts is just one sign the recovery remains fragile.
The Spanish unemployment rate inched up in the fourth quarter of 2014 to 23.70 percent, according to a survey by Spain's National Statistics Institute on Thursday. But nearly 434,000 jobs were created in the past 12 months, the data showed, the first sign of a turnaround after years of layoffs.
"We are starting to climb out of the hole," Spanish Economy Minister Luis de Guindos said in a TV interview on Thursday.
Spain has emerged from recession as one of the fastest-growing euro zone economies, helped by improving consumer demand and strong exports. But the sustainability of the rebound will come under increasing scrutiny as Spain gears up for a general election this year.
The unemployment rate remains second highest in Europe, behind Greece. Many new jobs are low-skilled, low-paid and offer little security, which presents long-term dangers, economists and unions warn.
"Those on temporary contracts will not be able to get mortgages ... they're still locked out of the housing market and normal spending patterns," said Raj Badiani, an economist at IHS Global Insight.
About 40 percent of the jobs created in 2014 were temporary. In the fourth quarter, however, temporary contracts declined and fixed-term jobs grew - an encouraging trend, according to some analysts, if it continues in 2015.
The unemployment rate was slightly higher than the 23.67 percent reached in the third quarter of last year, as the number of people out of a job rose 30,100 to just over 5.4 million.
Employment growth in whatever form should help Prime Minister Mariano Rajoy's centre-right People's Party (PP) and its chances of re-election, as tax cuts also feed into a strengthening economic recovery.
"In the short term and the run-up to elections, the government is going to do what it can to boost growth, as its main play is going to be 'all the work we've done is paying dividends'," said Raoul Ruparel, head of economic research at think tank Open Europe.
The PP had vowed to end its term with lower joblessness than it started with over three years ago. If another 600,000 jobs are created this year, as Rajoy is now predicting, the number of people working would surpass late 2011 levels.
So far, the private sector is driving employment. Media Markt, an electronics chain owned by Germany's Metro Group, is just one company increasing hiring plans as it opens more stores.
It aims to take on nearly 5,000 people in the next five to seven years, Spanish human resources director Josefa Solanilla said. Its ambitions have not gone unnoticed: the group got 18,000 CVs for about 100 jobs when it opened a store last year.
There are still doubts Spain can keep up this pace of job creation, however.
"We expect employment creation to continue, though perhaps at a slower rate than in 2014 as strong growth was partly due to pent-up demand for labour," said Victor Echevarria, economics analyst at Spanish financial consultancy AFI.
Some analysts also warned that the jobs rebound was spurred by sectors such as services, which created three times more jobs last year than industry. That could store up problems -- jobs in hotels and restaurants, for instance, are often seasonal or temporary, and their pay is lower.
"The biggest worry is that the sectors generating jobs ... are ones of little added-value," said Carlos Martin, an economist at the CCOO labour union. "We are not seeing a trend change in terms of the budget, to create an different employment model, with investments in research and innovation."
"Everything is still precarious and volatile."
Additional reporting by Paul Day; Editing by Catherine Evans, Larry King