June 2 (Bloomberg) -- Europe’s unemployment rate rose to the highest in almost 10 years in April as the worst global economic slump in more than six decades forced companies to cut jobs and spending.

Unemployment in the 16-member euro region increased to 9.2 percent from 8.9 percent in March, the European Union statistics office in Luxembourg said today. That was the highest since September 1999 and exceeded the 9.1 percent rate expected by economists, according to the median of 29 forecasts in a Bloomberg News survey.

The global recession has eroded exports and investment, pushing the European economy into its deepest contraction in at least 13 years. Air France-KLM Group, Europe’s biggest airline, on May 19 announced more job cuts after reporting its first annual loss since 1996. European Central Bank President Jean- Claude Trichet said on May 7 he saw “tentative signs” of stabilization after the ECB cut interest rates to a record low.

“The speed and magnitude of the ongoing deterioration in the labor market is a clear indication of the havoc the global downturn is wreaking on the euro-area economy,” said Colin Ellis, European economist at Daiwa Securities in London. “Unemployment certainly has further to rise this year, which will put more pressure on the ECB to ramp up its unconventional policy measures, in particular its asset purchases.”

Key Rate

The ECB last month stepped up its fight against the economic slump by cutting its key rate to 1 percent while pledging to buy 60 billion euros ($84.8 billion) of covered bonds, low-risk securities backed by mortgages and public-sector loans. The central bank will unveil details of the asset- purchase plan along with the latest economic forecasts when council members next meet on June 4.

While some policy makers have expressed optimism that the worldwide recession may be easing, recent reports indicate any recovery is likely to be slow. The global economy will shrink 1.3 percent this year before expanding 1.9 percent in 2010, according to forecasts by the International Monetary Fund, which has led aid packages for Hungary, Romania and Latvia in the EU.

The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered more than $1.46 trillion of writedowns and credit losses at financial companies and sent the global economy into its first recession since World War II, according to data compiled by Bloomberg. The European Commission said on May 4 that it expects the euro-area economy to shrink 4 percent this year and 0.1 percent in 2010.

‘Very Volatile’

Royal KPN NV, the largest Dutch phone company, said last month that markets “deteriorated significantly” and that it won’t meet its revenue forecast for next year. Ternitz, Austria- based Schoeller-Bleckmann Oilfield Equipment AG, a maker of drilling equipment for oil fields, said on May 19 that it expected “the market environment to remain very volatile” in 2009 after first-quarter profit dropped 27 percent.

The European Commission expects euro-region unemployment to average 9.9 percent this year and 11.5 percent in 2010, with the highest jobless rates expected in Spain and Ireland. Spanish unemployment rose to 18.1 percent in April, the highest in the 27-nation EU, today’s report showed, while the jobless rate in Ireland increased to 11.1 percent. Spain accounted for more than 60 percent of the increase in unemployment in the euro area in the last year, Eurostat data show.

The euro was lower against the dollar after the jobless data. The European currency traded at $1.4126 at 10:42 a.m. in London, down 0.2 percent on the day.

Luxury Cars

With companies still cutting output and jobs, the euro-area economy may struggle to gather strength after contracting 2.5 percent in the first quarter from the previous three months. That was the biggest drop in gross domestic product since the data were first compiled in 1995. The statistics office will release a breakdown of GDP tomorrow.

Munich-based Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, said earlier this month that it was “much too early” to predict an end to the industry’s slump. Air France, based in Paris, said it will reduce its workforce by about 3,000 this year to counter a drop in demand.

“Trading conditions in the first half remain challenging and visibility for the second half is still low,” Air France Chief Executive Officer Pierre-Henri Gourgeon said. Still, there have been “some signs of stabilization in recent weeks.”

European economic confidence rose for a second month in May and the manufacturing industry contracted at the slowest pace since October, recent data showed. Investors also grew more confident last month.

“Survey data in the euro area and other parts of the world suggest that the pace of decline in economic activity is moderating and that the euro area is stabilizing,” ECB Vice President Lucas Papademos said on May 27. “Overall the available information confirms our expectation that the euro- area economy will gradually recover in the course of 2010.”

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: June 2, 2009 05:43 EDT