Euro Unemployment Holds Near Record Amid Factory GainsStefan Riecher
The euro-area unemployment rate held near a record, even as manufacturing grew at the fastest pace in three months, adding to mixed signals about the 18-nation currency bloc’s recovery.
The jobless rate was 11.8 percent in March, a level reached in December and near the record of 12 percent last year, the European Union’s statistics office in Luxembourg said today. Meanwhile, a Purchasing Managers’ Index rose to 53.4 in April from 53 a month earlier, Markit Economics said. The gauge has been above 50, indicating expansion, for 10 months.
“At the current pace, it will take years if not decades to reverse the increase in unemployment by 7.5 million since 2008,” said Christian Schulz, senior economist at Berenberg Bank in London. “But it is a start. We expect the labor market improvement to accelerate soon following stronger momentum in the economy since the beginning of the year.”
While the euro area’s fragile recovery has yet to generate many jobs, it has helped ease tensions in the bond markets. Spain’s 10-year yield fell below 3 percent for the first time since 2005 today, and Italian 10-year bond yields dropped to a record low. The economy will expand 1.2 percent this year and 1.8 percent in 2015, according to the European Commission.
European Central Bank President Mario Draghi expects the euro area to continue its rebound from a record recession, though he said last month that his “biggest fear” is a protracted stagnation that leads to high unemployment becoming structural. Low inflation has prompted him to pledge further stimulus if needed to fight the danger of deflation, which could harm economic growth.
“Survey measures of employment intentions such as that in this morning’s final manufacturing PMI continue to point to some pick-up in jobs growth in the coming months, but the improvement is likely to be slow,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “For the foreseeable future, the vast amount of slack in the euro-zone labor market will add to the disinflationary forces at work in the currency union.”
Today’s unemployment data show that the euro-area recovery remains uneven. In Austria, the bloc’s lowest rate rose to 4.9 percent, while in Germany, Europe’s largest economy, it was unchanged at 5.1 percent. Yet Spain and Portugal reported unemployment unchanged at 25.3 percent and 15.2 percent, respectively.
“The fear of structurally high unemployment in the euro area is totally justified,” said Evelyn Herrmann, European economist at BNP Paribas SA in London. “We think that the recovery will ultimately push the jobless rate down, but it will remain above 10 percent for many years.”
A gauge of German factory output increased to 54.1 from 53.7 in March, while Italy’s index rose to 54, the highest since April 2011. Spain’s gauge was little changed at 52.7 compared 52.8 in March and France’s measure slid to 51.2 from 52.1.
“While Germany, Spain and Italy are enjoying a good start to 2014 so far, France remains a concern,” said Chris Williamson, an economist at Markit. “The key to the divergence appears to lie largely in export performance and competitiveness.”
Euro-area inflation was 0.7 percent in April, compared with 0.5 percent in March, well below the ECB’s target of just under 2 percent. At the same time, the core rate, which strips out volatile items such as energy or food, rose to 1 percent. The ECB in March forecast inflation to gradually accelerate to 1.5 percent in 2016. The Frankfurt-based central bank will release new projections in June.
The ECB’s 24-member Governing Council will gather in Brussels next week and announce its interest-rate decision on May 8. The Frankfurt-based central bank left its benchmark rate unchanged at a record low of 0.25 percent last month.