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Unemployment in the eurozone fell back to a record low of 6.4 per cent in November, defying recent economic gloom after the number of jobless people fell almost 100,000 from a month earlier.
The continued strength of Europe’s labour market will add to caution among European Central Bank policymakers about the timing of a potential cut in interest rates as they worry that rapid wage growth could keep price pressures elevated.
The region’s job market is proving more resilient than expected by economists, who had forecast an unchanged unemployment rate for November of 6.5 per cent in a recent Reuters poll.
“Real economic weakness is not yet feeding through to the labour market,” said Tomasz Wieladek, economist at investor T Rowe Price. “As a result, the near-term weakening in inflation will not comfort the ECB since risks of elevated wage pressures and hence above target medium-term inflation remain high.”
The ECB, which was due to meet to discuss monetary policy on January 25, pushed back against investor expectations of imminent rate cuts last month, saying it wanted to see signs of wage pressures cooling to be sure inflation was on track to hit its 2 per cent target.
Eurostat, the EU’s statistical agency, said on Tuesday the number of jobless people in the eurozone fell to 10.97mn, down 99,000 from the previous month and 282,000 from a year earlier. The biggest recent improvement was in Italy, where the ranks of unemployed people declined by 66,000 to just over 1.9mn in November.
Economists expected the eurozone unemployment rate to rise this year as a result of sluggish growth, weak demand, rising wages and growing numbers of companies signalling plans to dismiss workers.
“Looking ahead, surveys suggest that hiring intentions are coming down and some firms, predominantly in manufacturing, are looking to shed workers as the outlook for their sector remains bleak,” said Melanie Debono, an economist at consultants Pantheon Macroeconomics.
The bloc’s unemployment rate has almost halved since peaking at 12 per cent in 2013 when millions of people lost their jobs in the region’s debt crisis. It rose briefly in 2020 when pandemic lockdowns paralysed the economy, but furlough schemes cushioned the blow and the jobless rate has kept falling despite a slowdown in activity over the past year.
Many companies have been hoarding labour, retaining more staff than they need in the hope that demand will rebound and they will be able to operate at increased capacity. But Wieladek said this was unsustainable. “After all, if real wages continue to rise, it will become unaffordable to keep so many workers on while productivity growth is so low,” he said.
Economists expected the eurozone economy to remain weak in the fourth quarter of last year and recent data painted a mixed picture. Exports from the bloc rose 3.7 per cent in November from the previous month, while manufacturing orders in Germany were up 0.3 per cent.
However, German factory output fell 0.7 per cent in November, its sixth monthly decline in a row. There were few signs of a rebound in December after a 3.5 per cent drop in truck traffic on German motorways — which is usually a strong indicator of a further drop in industrial activity in the bloc’s largest economy.
Consumers also reined in their spending in the run-up to Christmas with retail sales in the eurozone falling 0.3 per cent in November from a month earlier, confounding economists’ expectations for a rebound.
