European Unemployment Sets Another Record

PARIS — The euro zone jobless rate rose to a record 12.1 percent in March, a sharp reminder that unemployment remains among the region’s biggest problems.

The unemployment rate in the 17-nation currency union ticked up by one-tenth of a percentage point from February, when the previous record was set, Eurostat, the statistical agency of the European Union, reported from Luxembourg. A year earlier, euro zone joblessness stood at 11 percent.

A separate report Tuesday from Eurostat showed inflation dropping sharply in the euro zone, well below the European Central Bank’s target of 2 percent a year. The annualized rate of inflation for consumer prices was just 1.2 percent in April 2013, down from March, when inflation stood at 1.7 percent.

The reports, along with other recent data suggesting that the economy is healing more slowly than many had hoped, could prompt the European Central Bank to take action at its policy meeting on Thursday. The central bank could cut its key interest-rate target, already at a record low of 0.75 percent, by a quarter point, economists say, though the impact of such a move would probably be slight, because banks remain less than eager to lend.

“Stabilizing the peripheral euro zone countries will take at least until the end of 2013,” Ralph Solveen, an economist with Commerzbank in Frankfurt, said. As a result, he said, unemployment would probably keep rising “until next spring.”

For the 27-nation European Union, the March jobless rate was unchanged, at 10.9 percent. Eurostat estimated that 26.5 million men and women were now unemployed in Europe, including 5.7 million young people.

Both the euro zone and European Union jobless figures are the highest Eurostat has reported since it began keeping the data in 1995 in the days before the euro. In comparison, the unemployment rate in the United States was 7.6 percent in March.

Six years after Wall Street’s bad bets on the United States housing market began to sink the global financial system, the European economy remains trapped in torpor with little relief in sight. Governments have tightened the screws on public finances to meet deficit targets, and companies remain extremely reticent about hiring. The euro zone’s gross domestic product is widely expected to decline for a second consecutive year in 2013.

Manufacturers are largely dependent on demand from outside Europe for growth. Carmakers, which employ about two million people in Europe, anticipate sales in the European Union this year to fall back to levels last seen in the early 1990s. In that dismal landscape, PSA Peugeot Citroën, the French automaker that ranks No. 2 in Europe behind Volkswagen, said Monday that its unions had agreed to a plan to close a plant near Paris and to reduce its French work force by more than 11,000.

While a decline in energy prices helped to push the inflation rate lower, Jennifer McKeown, an economist in London with Capital Economics, argued that the jobless problem was probably itself part of the reason for the downward pressure on prices. She said in a note that it would be “a disappointment” if the E.C.B. failed to ease rates and “announce further unconventional policies to boost bank lending.”

Two nations are staggering under depression-level jobless rates: Greece, where the European sovereign debt crisis began, had a rate of 27.2 percent in January, the latest month for which data are available; Spain had unemployment of 26.7 percent in March. Portugal was next at 17.5 percent. Germany, which has the largest economy in the European Union, was at just 5.4 percent, with only Austria, at 4.7 percent, lower. Britain’s rate stood at 7.8 percent, while France’s was at 11 percent.

Mr. Solveen forecasted that the euro zone economy would shrink by 0.2 percent this year, but he pointed to progress in some countries, including Italy and Spain, in addressing problems that he said would eventually help turn things around. Still, Spain’s “catastrophic” unemployment rate is a reminder that its burst housing bubble is still sapping the economy.

“The correction there has to go on,” he said, “because there is still a huge number of unsold homes.”

Mr. Solveen said that Germany had reduced its dependence on its euro zone neighbors, and the key to its economic growth was now tied to the global economy.

Article source: http://www.nytimes.com/2013/05/01/business/global/european-unemployment-sets-another-record.html?partner=rss&emc=rss