Euro-Area Unemployment at Record, Inflation Quickens: Economy

Euro-Area Unemployment at Record 11.3%, Inflation Accelerates
The number of people out of work in Germany increased a seasonally adjusted 9,000 to 2.9 million in August, more than economists in a Bloomberg survey had forecast. Photographer: Michael Nagle/Bloomberg

Euro-area unemployment rose to a record and inflation quickened more than economists forecast as rising energy costs threaten to deepen the economic slump.

The jobless rate in the economy of the 17 nations using the euro was 11.3 percent in July, the same as in June after that month’s figure was revised higher, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. Inflation accelerated to 2.6 percent in August from 2.4 percent in the prior month, an initial estimate showed in a separate report. That’s faster than the 2.5 percent median forecast of 31 economists in a Bloomberg survey.

A 12.4 percent surge in crude-oil prices over the past two months is leaving consumers and companies with less money to spend just as governments seek ways to contain the debt crisis. European economic confidence dropped more than economists forecast to a three-year low in August and German unemployment increased for a fifth month, adding to signs the euro-area economy continued to shrink in the third quarter.

“The whole euro zone is undergoing negative growth developments,” Don Smith, a London-based economist at ICAP Plc, told Ken Prewitt on Bloomberg Radio yesterday. “The sense is that increasingly the euro-zone crisis is bearing down on countries in northern Europe and Germany in particular and this is really forcing officials’ hands toward coming up with a firm solution.”

Debt Turmoil

The euro was higher against the dollar, trading at $1.2587 at 12:54 p.m. in Brussels, up 0.7 percent on the day. The European currency has declined more than 12 percent in the past year as EU leaders have battled the debt turmoil that has prompted five euro-area countries to seek external aid.

The European Central Bank, which will publish its latest economic projections next week, said in June that the euro-area economy may shrink 0.1 percent this year, with inflation averaging 2.4 percent. The ECB aims to keep annual gains in consumer prices just below zero.

With the economy cooling and executives and consumers growing more pessimistic, companies may find it difficult to pass on higher prices and instead focus on cost cuts. A gauge of employment expectations among euro-area manufacturers declined in August, the European Commission said yesterday.

In Germany, Europe’s largest economy, which helped soften the region’s slowdown in the first half of the year, indicators are also weakening. The number of people out of work in Germany increased a seasonally adjusted 9,000 to 2.9 million in August, more than economists in a Bloomberg survey had forecast.

Siemens, Alcatel-Lucent

Siemens AG, Europe’s largest engineering company, on Aug. 27 announced 500 job cuts at the business making mechanical drives to counter waning demand. The cuts add to thousands of reductions that Siemens has announced this year, with Chief Executive Officer Peter Loescher also lowing the profit target.

Deutsche Lufthansa AG, Europe’s second-largest carrier, said on Aug. 22 that it plans to cut more jobs and may move some activities outside Germany as it works on a savings plan aimed at shaving 1.5 billion euros ($1.9 billion) from annual costs by 2015. Alcatel-Lucent SA, France’s largest phone-equipment supplier, said last month that it will eliminate 5,000 jobs.

In the U.K., house prices rose the most in more than 2 1/2 years in August as a resilient employment market helped overcome the impact of a shrinking economy, Nationwide Building Society said today. The British Chambers of Commerce cut its U.K. economic forecasts and now predicts the economy will contract this year for the first time since 2009.

Industrial Production

In Asia, Japanese industrial production unexpectedly slumped in July and consumer prices slid at a faster pace, raising the danger that the world’s third-largest economy has slipped back into a contraction. Industrial output also declined in South Korea.

Today’s report showed that 18 million people were unemployed in the euro area in July, up 88,000 from the previous month. At 25.1 percent, Spain had the highest jobless rate in the EU. Portugal reported unemployment of 15.7 percent, with Ireland at 14.9 percent. France’s jobless rate was at 10.3 percent.

Rising joblessness threatens to further curb household spending, deepening the economic slump. A gauge of euro-area consumer confidence dropped to the lowest in more than three years in August, with an indicator of their assessment of the economic development over the coming year also slumping.

Distressed Nations

The ECB, which in July cut its benchmark interest rate to a record low of 0.75 percent, is working out details of a plan to purchase government bonds of distressed nations along with Europe’s rescue fund. So far, neither Italy nor Spain has asked for help from the bailout facility, the European Stability Mechanism.

The central bank, led by Mario Draghi, will hold its next meeting on Sept. 6 in Frankfurt.

“There may be a little bit of disappointment,” Piero Ghezzi, head of global economics at Barclays Plc, told Mark Barton on Bloomberg Television’s “On the Move” on Aug. 29. “A solution in Europe could be coming from the ECB if they were willing to do unlimited and unconditional purchases.”