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Unemployment in the eurozone has increased from its record low, rising unexpectedly to 6.5 per cent as high interest rates and a stagnating economy start to take their toll on the region’s job market.
Eurostat, the EU statistics office, said on Friday that the number of unemployed people rose 69,000 in September from the previous month to a total of just over 11mn in the 20 countries that share the euro.
The European Central Bank, which last week halted its series of interest rate rises, is watching the job market closely for signs it will weaken and slow rises in wages, a key driver of recent inflationary pressures.
“We are seeing first signs that the labour market is softening,” ECB board member Isabel Schnabel said in a speech on Thursday before the data was released. “But the more slowly this process unfolds and the weaker it is, the higher the risks that persistent labour market tightness will challenge the assumptions underlying the projected decline in core inflation.”
September’s rise in unemployment, which economists had forecast would remain at a record low of 6.4 per cent in a Reuters poll, is expected to mark the start of a decline in the eurozone’s job market after many years of steady recovery. The ECB has forecast eurozone unemployment will rise to 6.7 per cent next year, as sluggish growth prospects force employers to cut jobs.
Claus Vistesen, an economist at consultants Pantheon Macroeconomics, said: “Looking ahead, we think eurozone unemployment will rise further over the coming months, as gross domestic product falters and survey data suggest firms have started to shed workers, particularly in manufacturing.”
The bloc’s unemployment rate has almost halved since peaking at 12 per cent in 2013 when millions of people lost their jobs during the region’s sovereign debt crisis. It rose briefly in 2020 when pandemic lockdowns brought the economy to a standstill, but furlough schemes cushioned the blow and the jobless rate has kept falling since then despite a slowdown in activity over the past year.
Growth has ground to a halt this year in the eurozone as high inflation, the ECB’s sharp rise in interest rates and a weakening global economy hit activity. The bloc’s GDP shrank 0.1 per cent in the three months to September from the previous quarter.
The share of businesses surveyed by the EU citing labour shortages as a constraint on production fell in all sectors last month, while the hiring intentions of companies have fallen below long-run averages in some sectors.
Some companies hit by falling demand have given up hope of an improvement in the next year or two and are starting to cut jobs. German steel distributor Klöckner said this week it would cut about 300 jobs, or 10 per cent of staff in its European trading business.
“We think wage growth will slow in the coming quarters,” said Bradley Saunders, an economist at research group Capital Economics, pointing out that Europe’s vacancy rate had fallen and job postings on the Indeed website were “trending downwards in Germany and France”.
The ECB has forecast that pay per eurozone employee — its favoured measure of wage growth — will rise 5.3 per cent this year, well above a level consistent with inflation hitting its target of 2 per cent. But it expects wage growth to slow from the second half of this year, falling to 3.8 per cent in 2025.