Spanish unemployment to rise: European Commission

BRUSSELS: Spanish unemployment probably will rise above its current record level as the country grapples with budget challenges and the threat of further costly bank bailouts, the European Commission said.

Spanish banks may have to set aside even more capital to brace themselves against the impact of a weaker economy, the commission, the European Union's regulatory arm, said in a staff report today.

As a result, banks may tighten credit and make it harder for firms to get financing as the economy contracts and governments cut spending.

"Unemployment is likely to increase further in the short- term," the commission said in the report, prepared to accompany updated policy recommendations.

Spain's GDP is forecast to fall 1.8% this year and 0.3% in 2013, with the strongest economic contraction in the second half of 2012. The jobless rate is projected to increase to 25.1% next year.