European Unemployment Holds at 12-Year High of 10% Amid Reluctance to Hire

European unemployment held at the highest in almost 12 years in May as the debt crisis made companies reluctant to add workers.

The jobless rate in the 16-nation euro area remained at 10 percent, the European Union’s statistics office in Luxembourg said today. That’s the highest since August 1998. The April figure was revised down from a previously reported 10.1 percent. Producer-price inflation accelerated to 3.1 percent in May from 2.8 percent in April, a separate release showed.

European companies may keep hiring plans on hold as the recovery shows signs of losing momentum. Governments have stepped up spending cuts to reduce budget deficits and restore investor confidence, which may curb demand in the region. Manufacturing growth slowed for a second month in June and German investor confidence declined the most since October 2008.

The unemployment figures “add to evidence that domestic demand will remain weak in the second half of the year,” said Ben May, an economist at Capital Economics Ltd. in London. “Even if unemployment does begin to fall, wage growth is likely to slow in response to the earlier rise in unemployment.”

The euro slipped 0.2 percent against the dollar to $1.2504 as of 10:05 a.m. in London, taking its decline this year to 13 percent. The yield on the 10-year German bund was little changed at 2.57 percent, within five basis points of the three-week low of 2.526 percent reached June 29.

Job Cuts

In the 27-member European Union, unemployment held at 9.6 percent. Five member states had a drop in unemployment from a year earlier, while 22 countries reported an increase. At 19.9 percent, Spain had the highest jobless rate in the euro region.

The number of jobless in the euro area rose 35,000 in May from April. The unemployment total has increased by almost 1 million people in the last year.

Companies are still eliminating jobs and paring costs to protect earnings. Metro AG, the world’s third-largest retailer, based in Dusseldorf, Germany, said June 18 it will close three wholesale stores and cut about 900 jobs after failing to turn the outlets around.

Costs of intermediate goods rose 3.9 percent in May from a year earlier while energy prices surged 7 percent, today’s producer-price report showed. Producer prices of capital goods and durable consumer goods also increased from May 2009. In the month, producer prices rose 0.3 percent.

The European Central Bank on June 10 lowered its euro- region growth forecast for next year to about 1.2 percent from 1.5 percent. In 2010, the economy may expand around 1 percent, the central bank forecast.

ECB President Jean-Claude Trichet said on that day that while the euro-region economy may grow at a “moderate and still uneven pace over time,” a recovery may be held back by “weak labor-market prospects.” The European Commission said on June 21 that it may take “some time” for employment to improve.

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

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