Oct. 1 (Bloomberg) -- Europe’s unemployment rate rose to the highest in more than 10 years in August as companies continued to cut jobs even as the region’s largest economies emerged from recession.

Unemployment in the 16-member euro region increased to 9.6 percent from 9.5 percent in July, the European Union statistics office in Luxembourg said today. That’s the highest since March 1999 and matched the median forecast from a Bloomberg survey of 23 economists.

The German and French economies both emerged from the recession in the second quarter and the euro-area economy probably followed in the third, according to the European Commission. Rising unemployment may be an obstacle to the recovery, including in Germany, where the government has been offering temporary subsidies to maintain payrolls.

“With these short term schemes starting to expire, the only thing to expect is for unemployment to continue increase going into next year,” said Martin van Vliet, senior economist at ING Bank. “They are postponing the damage.”

German unemployment remained unchanged at 7.7 percent while Spain’s jobless rate rose to 18.9 percent and Ireland’s increased to 12.5 percent, today’s report showed.

“The risk of unemployment is still hanging in the air so consumers will continue to retrench on spending,” van Vliet said.

The euro declined against the dollar today, and was down 0.4 percent at $1.4582 as of 10:44 a.m. in London.

‘Massive Increase’

Companies across the euro region have slashed jobs to weather the worst recession in 60 years. Siemens AG has cut its global workforce to 408,000 this year from more than 420,000, while Air France-KLM said on Sept. 4 it plans to cut 1,500 jobs. Dexia SA, Belgium’s biggest bank by assets, announced on Sept. 25 an additional 602 job cuts.

“We will likely see a massive increase in unemployment in Europe,” Jean-Claude Juncker, who heads the group of euro-area finance chiefs, said on Sept. 29.

European Central Bank Governing Council member Ewald Nowotny said on Aug. 31 that rising unemployment may suppress growth “for some time.” The bank’s president, Jean-Claude Trichet, has warned the recovery will be “bumpy.”

The Frankfurt-based bank has lowered its benchmark interest rate to a record low of 1 percent, offered banks unlimited cash and purchased covered bonds to bolster spending.

Unemployment in the euro region will rise to 11.7 percent next year, higher than the U.S. or the U.K., the International Monetary Fund said today. The region’s highest rates will be in Spain and Ireland, as both countries suffer from the collapse of their housing markets.

Spain and Ireland are also forecast to contract more than the rest of the euro region next year, the IMF said, as it estimated the euro-area economy may shrink 4.2 percent this year and grow 0.3 percent in 2010.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Last Updated: October 1, 2009 05:50 EDT