Spain Faces ‘Explosive Cocktail’ of Risk on Jobs, Rotten Loans

Spain faces an “explosive cocktail of risk factors” as it wrestles with a fiscal deficit at 11 percent of gross domestic product caused by bad loans to builders and swelling unemployment, UniCredit SpA said.

The nation’s budget gap is the third largest in the European Union and with an unemployment rate of more than 20 percent, the government in Madrid has limited room to maneuver, according to Stefan Kolek, a credit strategist at UniCredit. Bad loans at Spanish lenders climbed to 5.3 percent of total credit in January as the worst recession in 60 years forced borrowers to miss payments on their debt.

“The high dependence of the economy on a highly leveraged construction sector in conjunction with still falling housing prices makes an explosive cocktail of risk factors,” Munich- based Kolek wrote in a note to investors.

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