Eurozone unemployment adds to gloom ahead of polls
Financial markets are braced for a rocky ride next week if voters in France and Greece strike a blow against the centrally imposed deficit targets that have been at the heart of Europe's response to the debt crisis over the past two year
Rising unemployment and plunging business confidence in the euro area revealed the increasingly fragile state of the region's economy on Wednesday, as voters in France and Greece prepare to deliver their verdict on austerity in Sunday elections.
Official figures showed that unemployment across the 17-member single currency zone increased by 169,000 in March, for the 11th consecutive month, to hit 17.37m. The unemployment rate was 10.9%, the highest level in its history.
Even in Germany, which has so far largely escaped unscathed from the downturn sweep of the labour market, unemployment began to tick up in March, though it remained at just 5.6% of the workforce.
There was also evidence that businesses are being hit by what many analysts expect to be a eurozone-wide recession. The manufacturing PMI for the zone in April a measure of confidence among businesses registered a sharp decline, from 47.7 to 45.9, the lowest since June 2009, and well below the 50 mark which signals growth.
The sharpest declines were seen in Italy and Spain. But the PMI reading for Germany also slipped, to a 33-month low of 46.2, suggesting that Europe's largest economy is being dragged into the malaise that is afflicting its austerity-ravaged neighbours.
Jonathan Loynes, chief European economist at consultancy Capital Economics, said: "The latest data on the state of the eurozone labour market and manufacturing sector underline the enormity of the challenge facing policymakers to respond the growing calls for growth across the region."
Neil Mellor, currency strategist at BNY Mellon, said: "The bottom line is, Europe needs growth, there is no growth, and austerity may be part of the answer, but not without demand."
As Lucas Papademos,! Greece' s technocratic prime minister, who was drafted in at the height of the country's sovereign debt crisis, prepared to bow out and return to teaching at Harvard after Sunday's elections, more than one in five of the Greek workforce 21.7% are unemployed.
Greece's figures date from January, the most recent Europe's statistical agency could collect, so the situation may even have worsened.
In Spain, meanwhile, focus of the latest wave of market panic about the future of the single currency, unemployment was at 24.1% in March, while in Portugal, it was 15.3%. In total, eurozone unemployment has increased by 1.68m in the past 12 months.
Financial markets are braced for a rocky ride next week if voters in France and Greece strike a blow against the centrally-imposed deficit targets that have been at the heart of Europe's response to the debt crisis over the past two years.
Franois Hollande, the socialist candidate and frontrunner for the French presidency, has said he wants to negotiate a package of pro-growth measures alongside the "fiscal compact" that allows Brussels to enforce strict deficit limits on eurozone member countries.
Sony Kapoor, of the Brussels-based thinktank Re-Define, said yesterday's data underlined the need for a new agreement among the eurozone's leaders about how to restore growth.
"The EU needs a growth compact more than anything else in order to stem the downward spiral of falling growth, rising unemployment and weakening banking systems that has currently taken hold," he said.
Mario Draghi, president of the European Central Bank, last week added his voice to those warning that spending cuts are starting to undermine growth in the eurozone, saying that austerity is, "starting to reverberate its contractionary effects".
The ECB's governing council will gather in Barcelona today, for one of the two meetings a year it holds in a member-state away from its Frankfurt base. Spanish police have laid on extra protection for the meeting, fearing th! at the E CB could become the focus of social unrest about rising unemployment.
Christel Aranda-Hassel, director of European economics at Credit Suisse, said the darkening economic outlook could force the ECB to cut interest rates in the coming months. "If the ECB prepares the ground for a June cut, it would mean that under Draghi's leadership the ECB has not only become more pragmatic but is also becoming more pro-active," she said.
With polls in Greece suggesting the parties that signed up to the country's latest bailout deal will be unable to form a majority government after Sunday's election, political momentum appears to be building across the eurozone against austerity.
Young workers are continuing to be disproportionately hit by the sharp rise in joblessness, Wednesday's figures showed, with the unemployment rate for the under-25s standing at 22.1% for the eurozone as a whole.
However, that average masks wide variations between countries, with 7.9% of young German workers unemployed, compared with more than half of under-25s in Greece and Spain.
Kapoor said: "With catastrophic unemployment levels in Spain, Portugal and Greece that are still rising, the real question is, how long before the social fabric gives way?"
The deteriorating labour market in the eurozone underlined the contrast between the economic fortunes of Europe and the US, where unemployment has started to fall in recent months, and recent business surveys have suggested rising confidence. US firms hired an extra 119,000 workers in April, according to a survey by payroll provider ADP, which gives an early indication of what official figures are likely to show on Friday.
Graham Turner, of GFC Economics, said America's ability to sell its exports into fast-growing developing markets had helped it to "decouple" from the struggling eurozone.
"The euro was created to underpin the single market, which was meant to provide an unrivalled 'free trade' zone to foster faster economic expansion. Instead, the! aggress ive expansion of free trade agreements on a bilateral basis has put the US in the driving seat as developing countries continue to increase their share of world imports.
Comments