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Euro-Area Unemployment Reaches Record 11%, Led By Spain

Published: June 1, 2012 | 10:36 am
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Euro-area unemployment reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to reduce their workforces.

The jobless rate in the 17-nation euro zone was at 11 percent in April and March, the European Union’s statistics office in Luxembourg said on June 1. That’s the highest since the data series started in 1995. The March figure was revised higher to 11 percent from 10.9 percent estimated earlier.

Europe’s companies are under pressure to lower costs to protect earnings as the worsening fiscal crisis erodes exports and consumer spending. Euro-area economic confidence dropped more than economists forecast last month and manufacturing output contracted. Deutsche Lufthansa AG (LHA) said on May 30 that it may cut as many as 1,000 jobs at LSG Sky Chefs, the world’s largest inflight caterer, in a bid to lower costs through 2014.

“The labor-market recession in the euro zone continues to spread and deepen,” said Martin van Vliet, an economist at ING Bank in Amsterdam. “We currently see the jobless rate peaking at or slightly above 11.5 percent, under the assumption that the euro-zone economy starts to emerge from its double-dip recession later this year.”

The euro was lower against the dollar for a fourth day, trading at $1.2327 at 10:35 a.m. in London, down 0.3 percent on the day.

Greece, Spain

In the euro area, 17.4 million people were unemployed in April, up 110,000 from the previous month, June 1’s report showed. In the year-earlier month, the jobless rate fell in 11 EU countries and increased in 15 with Ireland reporting an unchanged rate. Greece had an increase to 21.7 percent from 15.2 percent in the year through February, according to June 1’s report, which didn’t include more recent Greek data.

Spain, whose government is struggling to contain a banking crisis, had the bloc’s highest unemployment rate at 24.3 percent, up from 24.1 percent in March, June 1’s report showed. In France, the jobless rate rose to 10.2 percent from 10.1 percent, while Italy reported the same increase. Portugal’s rate reached 15.2 percent, up from 15.1 percent.

Adding to signs of a deepening slump, European economic confidence dropped more than economists forecast in May and manufacturing output contracted for a 10th straight month. In Germany, business sentiment fell more than economists had forecast in May, posting the steepest decline since August.

Reorganizing Operations

Companies from Lufthansa to Carrefour SA (CA) and Peugeot SA (UG) are reorganizing operations to counter lagging growth as the economy at home and across the euro area slows. Merck KGaA (MRK), the German maker of the Erbitux cancer drug, on May 15 reported a drop in first-quarter profit.

A gauge of euro-area manufacturing output dropped at the steepest rate since June 2009, with a German indicator reaching a 35-month low, Markit Economics in London said on June 1. A gauge of new export orders had the biggest decline since November, with countries from Spain to Germany reporting weaker demand.

The situation is “deteriorating at an alarming rate,” said Chris Williamson, chief economist at Markit Economics in London. “Euro-zone manufacturers reported a deepening downturn in May, indicating that the damage to the real economy caused by the region’s financial and political crises continues to spread across the region.”

Latest Projections

The European Commission said on May 11 that the euro-zone economy may shrink 0.3 percent this year, with countries from the Netherlands to Italy and Greece in recession. The European Central Bank, which will publish its latest projections when council members meet on June 6, currently forecasts a contraction of 0.1 percent in the euro area.

The euro has dropped 7.3 percent against the dollar over the past two months to near a two-year low as investors grew more concerned about a fracture of the currency area. Spain, which nationalized its third-largest lender last month, is trying to buttress its financial system even as borrowing costs approach levels that forced Greece, Ireland and Portugal to ask for external aid.

The ECB, which lowered its benchmark interest rate twice in the fourth quarter to 1 percent, matching a record low, and injected more than 1 trillion euros of liquidity into financial markets to avert a credit crunch, has signaled that it is up to governments to contain the turmoil. ECB President Mario Draghi said on May 31 that it’s “not our mandate” to “fill the vacuum left by the lack of action by national governments.”

Interest Rates

“We doubt the ECB will be willing to cut interest rates at their June 6 policy meeting and will prefer to see what happens with the Greek elections” later this month, said Howard Archer, chief European economist at IHS Global Insight in London. Still, “pressure on the ECB to take interest rates below 1 percent sooner rather than later is mounting from the current deteriorating euro-zone economic environment.”

The April euro-area unemployment rate was in line with the median forecast of 28 economists in a Bloomberg survey.

Source: Bloomberg


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