Spain's unemployment rate hit a nearly 12-year high of 18.8 percent in the fourth quarter of 2009 and the government said it could reach 20 percent this year as billions of euros in anti-crisis spending winds down. Almost half a million out-of-work builders were contracted by the government in the second half of last year, paid for by a stimulus plan aimed at offsetting the immediate effects of the collapse of the construction industry.

"I don't rule out that at some point this year, temporarily, the jobless rate will reach 20 percent," Economy Secretary Jose Manuel Campa told reporters. The massive state-funded plan was the government's response to a hangover from a decade-long economic boom fuelled by cheap credit and a thriving property sector.

Now the boom is over and the rainy-day funds are spent, the government must face the cold reality of funding one of the highest public deficits in the eurozone in a nervous market. "Spain is living in a particularly difficult period, but the government has no choice if it wants to continue selling its debt and not fall in to the same trap as Greece," said economist at 4Cast Jose Garcia Zarate.

The government will detail an austerity plan later on Friday which aims to cut the deficit, expected to top 10 percent of gross domestic product in 2009 and 2010, to 3 percent of GDP by 2013 in line with European Union guidelines.

"The plan won't help solve the unemployment problem, but it will allow the government to recover some confidence." The 18.8 percent unemployment rate for the last three months of last year reported on Friday by the National Statistics Institute was up from 17.9 percent in the third quarter and compared to 18.5 percent expected by economists polled by Reuters.

Copyright Reuters, 2010