Madrid: Spain’s unemployment rate fell for the first time in two years and some of the country’s biggest firms said on Thursday business was looking up, boosting the government’s claim the economy is climbing out of recession.

The dip in the jobless figures — to 26.3 per cent in the second quarter from 27.2 per cent in the first — nonetheless highlighted how far the country still needs to travel on the road to full recovery. Economy Minister Luis de Guindos called the size of the figures “totally unacceptable”.

Spain is one of the Eurozone’s troubled economies, subject to a bank bail out after a housing bubble burst. But it is far stronger than others such as neighbour Portugal or Greece.

Jobs have been the main issue. The unemployment rate has risen relentlessly since 2011, with some 3.8 million people joining the jobless lines since the first quarter of 2008, the year the global financial crisis erupted and property prices collapsed.

The real estate meltdown left the country’s banks heavily exposed to soured assets and loans, which have since weighed on their balance sheets and soaked up €42 billion (Dh204 billion, $55.59 billion) of European Union aid.

Lower writedowns

On Thursday, three banks including bailed out lender Bankia , reported bad debts were still rising. But they also posted big jumps in first-half profits, on lower writedowns on property assets and trading gains.

Telecoms firms Telefonica and oil major Repsol — two heavyweight Spanish firms with more exposure to foreign economies — also gave encouraging trading updates.

Supported by a central bank report earlier this week showing Spain’s economy came close to stablising in the second quarter, Thursday’s run of encouraging news added weight to Prime Minister Mariano Rajoy’s belief the economy should exit its two-year recession as soon as the current quarter.

“Even seasonally adjusted [unemployment] data is better than we expected, which is in line with the economic improvements forecast by the Bank of Spain,” Angel Laborda, economist at think tank Funcas, said.

De Guindos repeated the forecast for third quarter growth on Thursday and said he was convinced the worst was over for the economy, but Rajoy had no chance to share in his economy minister’s cautious optimism.

The prime minister focused on a visit to his home province of Galicia to meet survivors of a train derailment late on Wednesday that killed least 78 people on the eve of the one of the country’s biggest religious festivals.

Weakest link

Madrid passed a series of austerity measures last year to tame one of the Eurozone’s highest public deficits.

That hobbled already depressed domestic demand, but has also taken it further than some of its peers along the path of economic reforms mandated by Brussels to get the Eurozone economy back on its feet.

Spain has also won tacit agreement this year from its Eurozone partners to ease off on tax hikes and spending cuts.

“The Spanish government has undertaken a bitter battle to stabilise growing unemployment, and it seems to be gaining ground,” Nancy Curtin, chief investment officer of Close Brothers Asset Management, said in a written note.

“But despite positive data in recent weeks, it’s evident that Spain is still struggling to balance austerity with growth.” Despite government projections, many economists believe the country’s second recession in three years is unlikely to end in 2013, and joblessness remains the weakest link.