Euro-Region Unemployment Unchanged as Economy Improves

The euro-area unemployment rate remained unchanged in June amid increasing signs the economy is emerging from its longest-ever recession.

The jobless rate in the economy of the 17 nations using the euro held at 12.1 percent last month, the European Union’s statistics office in Luxembourg said today. That matches the highest on record after May unemployment was revised down to that figure from an initially reported 12.2 percent. Euro-area inflation held steady at 1.6 percent in July after accelerating for two months, a separate report showed.

Europe is showing signs of a nascent recovery after manufacturing output unexpectedly expanded in July for the first time in two years and business confidence improved for a third month. The economy, which has contracted for a record six quarters, probably stagnated in the three months through June and will grow again this quarter, economists predict.

“Experience suggests that even as the economy is returning to growth, it takes another six to nine months for unemployment to turn around,” said Sarah Hewin, head of European research at Standard Chartered Plc in London. “I wouldn’t be surprised for unemployment to stay high and rise until next year even though activity picks up.”

Youth Unemployment

Joblessness will rise to 12.4 percent in the fourth quarter and average 12.3 percent next year, according to a Bloomberg monthly survey of economists. Youth unemployment in the euro area rose to 23.9 percent in June and topped 56 percent in Spain, which also had the highest overall jobless rate at 26.3 percent, today’s data showed. In Germany, Europe’s largest economy, the overall rate remained at 5.4 percent in June.

“The unemployment figures remain horrendously high,” Dennis Abbott, a spokesman for the European Commission, told reporters in Brussels. “It’s not something that’s going to be improved overnight.”

Europe faces the risk of prolonged economic stagnation unless policy makers encourage domestic spending, the U.S. Treasury Department’s top international official, Lael Brainard, said on July 15. The International Monetary Fund this month cut its global growth projections and said monetary stimulus should continue until the recovery is well established.

European car sales fell to a two-decade low in June as unemployment hurt demand at Fiat SpA (FIAT) and PSA Peugeot Citroen. (UG) Michelin & Cie, Europe’s largest tiremaker, said on June 10 that it would end production of heavy-truck tires at a factory in Joue-les-Tours, southwest of Paris, by the end of 2015. About 730 of the plant’s 930 employees will lose their jobs.

Two Years

Still, the total number of people out of work across the euro area declined in June for the first time in more than two years, today’s report showed. The number of job-seekers dropped to 19.3 million, down 24,000 from the previous month, the first decrease since April 2011.

The European Central Bank has kept its benchmark interest rate at a record low of 0.5 percent since May and President Mario Draghi committed this month to keep borrowing costs low for an extended period amid low inflation, a subdued economic outlook and “weaker and weaker” credit flows. Policy makers hold their monthly rate-setting meeting tomorrow in Frankfurt.

Lending to the private sector declined the most on record in June, the ECB said on July 25. While banks loosened credit standards for loans to consumers for the first time since the end of 2007, they continued to tighten policy for companies in the second quarter, according to the ECB’s Bank Lending Survey.

The ECB predicted in June the economy will contract 0.6 percent this year before growing 1.1 percent next.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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