The jobless rate in the euro area reached the highest on record as the festering debt crisis and deepening economic slump prompted companies to cut jobs.
Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 percent in May and held at that level in June, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. In Germany, unemployment climbed for a fourth straight month in July, a separate report showed.
Policy makers are weighing options to counter the turmoil that has forced five euro-area nations to seek external aid, eroded investor confidence and pushed companies to trim their workforces. European Central Bank President Mario Draghi, who met with U.S. Treasury Secretary Timothy Geithner yesterday in Frankfurt, has pledged to do everything to preserve the euro.
“Companies generally are under serious pressure to keep their labor forces as tight as possible to contain their costs in the face of the current limited demand, strong competition and worrying and uncertain growth outlook,” said Howard Archer, chief European economist at IHS Global Insight in London. “There looks to be a very real danger that the euro-zone unemployment rate could reach 12 percent in 2013.”
The euro was little changed after the report, trading at $1.2289 at 12:14 p.m. in Frankfurt. The single currency has lost about 7.4 percent against the dollar over the past three months, reflecting investor concern about a euro breakup.
Companies may continue to cut jobs as governments from Spain to Italy are seeking ways to plug their budget gaps. Euro-area economic confidence dropped more than economists forecast in July, with households the most pessimistic in almost three years, data showed yesterday. A gauge of manufacturers’ employment expectations declined from June.
The euro-area unemployment report was in line with the median forecast of 28 economists in a Bloomberg News survey. The statistics office had previously reported a jobless rate of 10.1 percent for May.
In Germany, Europe’s largest economy, the number of people out of work rose a seasonally adjusted 7,000 to 2.89 million in July, the Federal Labor Agency in Nuremberg said. The adjusted jobless rate held at 6.8 percent.
“The German labor market is clearly losing momentum,” said Carsten Brzeski, an economist at ING Group in Brussels. “Given the high level of employment, there is no need to panic. However, indications are increasing that light-hearted times are coming to an end.”
Today’s report showed that 17.8 million people were unemployed in the euro area in June, up 123,000 from the previous month. At 24.8 percent, Spain had the highest jobless rate in June. Portugal reported unemployment of 15.4 percent, with Ireland’s at 14.8 percent. France’s jobless rate was at 10.1 percent.
Alcatel-Lucent SA, France’s largest phone-equipment supplier, said on July 26 that it plans to eliminate 5,000 jobs after posting a second-quarter loss. PSA Peugeot Citroen, Europe’s second-biggest carmaker, has announced 8,000 job cuts.
The ECB in June forecast the euro-area economy will shrink 0.1 percent this year, before expanding 1 percent in 2013. Inflation was seen at 2.4 percent and 1.6 percent this year and next, respectively, according to its latest quarterly estimates.
The euro-area inflation rate remained at 2.4 percent in July, the same as in the previous two months, the EU’s statistics office said in an initial estimate today. It will release a breakdown of prices including core inflation, which excludes volatile costs such as energy, in August.
Europe’s debt crisis has also affected other parts of the world. Taiwan’s economy unexpectedly contracted in the second quarter from a year ago, South Korean output fell last month and a Japanese manufacturing gauge in July reached the lowest level since the wake of the 2011 earthquake, reports showed today.
The Federal Reserve starts a two-day policy meeting today amid speculation it will add to monetary stimulus to boost the world’s largest economy. U.S. consumer spending probably rose 0.1 percent in June following no change in May, a Bloomberg survey showed ahead of a report later today.
The Conference Board’s index of consumer confidence probably fell in July for a fifth month, the longest stretch of declines since the first half of 2008, a separate poll showed. The gauge is estimated to have fallen to 61.5 from 62 in June.
In Europe, Draghi is attempting to win Bundesbank President Jens Weidmann’s support for a multi-pronged approach to reduce bond yields in countries such as Spain and Italy, two central bank officials said. The proposal involves Europe’s rescue funds buying government bonds on the primary market, flanked by ECB purchases on the secondary market, they said.
“We’re in a recession for the euro zone as a whole,” Christian Schulz, senior economist at Berenberg Bank, said in an interview with Bloomberg Television in London today. “With the ECB now jumping in potentially, hopefully, confidence can improve. For the north of Europe, any stagnation or recession is really caused by the crisis itself.”
The ECB, which last month cut its benchmark interest rate to a record low of 0.75 percent, said yesterday that it didn’t settle any government bond purchases under its so-called Securities Markets Program for a 20th week. Still, Draghi said on July 26 that policy makers are ready “to do whatever it takes” to preserve the euro, suggesting they may intervene in bond markets again. The next meeting is on Aug. 2.
“There’s still an awful lot of skepticism out there of whether they’ll deliver,” Charles Diebel, head of market strategy at Lloyds Banking Group Plc, told Caroline Hyde on Bloomberg Television’s “On the Move” yesterday. “The previous efforts to support the market via the SMP were insufficient, they really didn’t do anything but load the ECB balance sheet with a bunch of peripheral bonds. It needs to be more than that and policy makers are probably aware of that.”