Unemployment in the eurozone today jumped to a fresh record high as the region’s top banker warned the beleaguered region’s economy will shrink until the second half of next year.
The jobless rate hit 11.7% in October, up from 11.6% in September, as conditions worsened in crisis-hit Spain and Italy and there were worrying signs that German could be tipped into recession.
Fears that the short-term outlook will worsen were fuelled by European Central Bank President Mario Draghi, pictured, who admitted: “We have not yet emerged from the crisis.” He said that austerity efforts by national governments will result in “a short-term contraction of economic activity, but this budgetary consolidation is inevitable”.
But he insisted: “The recovery for most of the euro zone will certainly begin in the second half of 2013.”
Unemployment and falling consumer confidence are being fuelled by a sovereign debt crisis that has lingered for the past three years. Germany’s Bundestag rubber-stamped the latest bailout deal for Greece, agreed by European finance ministers earlier this week, which gives the country more time to cut its debt.
“With financial stress subsiding, unemployment is currently a bigger drag on economic activity in Europe than financial turmoil.” says Bert Colijn, economist at think-tank The Conference Board. Colijn blamed “weak economic activity due to declining demand” and said “a big difference” with previous recessions is that austerity cuts are “resulting in fewer public sector jobs”.
The 11.7% jobless rate varies sharply across different countries, with unemployment flat in Germany and France while falls in Spain and Italy accelerated. An influential survey suggested that Germany, the eurozone’s biggest economy, could lurch into recession next year, for the first time in three years.
Just over half of the 862 European investors, analysts and traders surveyed told Bloomberg they thought Germany’s output will shrink and 64% said they expected the eurozone’s sovereign debt crisis to worsen. “Germany is starting to feel some pressure as sentiment in the eurozone weighs on its economy,” said Close Brothers analyst Chanoine Webb, who took part in the survey. The German economy grew 0.2% in the third quarter, against a 0.1% fall in the eurozone.French consumer spending also fell more sharply than expected last month.
