Unemployment in the euro zone has dipped to an all-time low in a sign that the region’s labour market remains in good shape despite weak economic growth.
Eurostat, the EU’s statistical agency, said on Tuesday the single currency bloc’s unemployment rate was 6.4 per cent – a record low – as it also revised down the rate in the previous two months from 6.5 per cent to 6.4 per cent.
The region’s labour market has proved more resilient than expected by economists, who had forecast a jobless rate for June of 6.5 per cent in a Reuters poll.
The number of jobless people in the euro zone fell to just over 10.8 million in June, down 62,000 from the previous month, Eurostat said.
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Economists pointed to falling job vacancies in Germany and France in July to warn that the bloc’s labour market could start to weaken due to an expected economic downturn later this year, as recent interest rate rises by the European Central Bank weigh on activity.
Official data also shows that, while the jobless rate is low, the number of hours worked by the average employee remains below pre-pandemic levels. Productivity growth is weak too.
“Looking ahead, we expect the unemployment rate in the euro zone to rise in the rest of this year as tight monetary policy causes economic activity to weaken,” said Giulia Bellicoso, an economist at research group Capital Economics.
The euro zone’s economy rebounded in the three months to June by growing 0.3 per cent from the previous quarter after six months of slight contraction in gross domestic product.
But recent surveys point to a likely downturn in business output and bank lending in July, which economists think raises the risk of a euro zone recession in the second half of the year.
“Survey data suggest labour demand is waning, particularly in manufacturing, as firms face a crash in demand, but they continue to point to still-rising employment,” said Melanie Debono, an economist at consultants Pantheon Macroeconomics.
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However, there was little sign of a reversal in the German job market in July after national data also released on Tuesday showed the country’s jobless numbers dipped by 4,000 at the start of the third quarter.
The resilience of the euro zone labour market is likely to maintain upward pressure on wages, as workers look for their pay to catch up with the recent surge in inflation.
The European Central Bank has expressed concern that tight job markets and rising wages could keep price pressures high, particularly in the labour-intensive services sector.
Eurozone wage growth was close to 5 per cent in the first quarter. However, Carsten Brzeski, an economist at Dutch bank ING, predicted the “current wave of surging wages should be temporary” because “the stagnating economy has dampened recruitment plans”.
Copyright The Financial Times Limited 2023
