November 28, 2020

Joblessness Edges Higher to Hit a Euro Zone Record

The jobless rate in the 17 countries that belong to the euro zone was 12.1 percent in May, adjusting for seasonal effects, according to a report from Eurostat, the European Union statistics agency. That figure compared with 12 percent in April, which was revised down from 12.2 percent reported earlier. Based on the revised figures, May unemployment was at a record high.

Eurostat estimated that 19.2 million people in the euro area were jobless in May, an increase of 67,000 from April. For all 27 countries in the European Union, the unemployment rate was unchanged at 10.9 percent. The European bloc expanded to 28 countries on Monday when Croatia officially joined.

Joblessness in the euro zone has been rising almost without interruption since early 2008, when the financial crisis began, declining only briefly at the beginning of 2011. And analysts see little prospect for a sustained decline anytime soon.

While economists expect the euro zone economy to stabilize in the course of this year, growth will most likely remain too slow to generate large numbers of jobs.

“The measure that offers the greatest potential for job creation in the short to medium term is an easing of credit conditions,” Marie Diron, an economist who advises the consulting firm Ernst Young, said in a statement. “This would allow companies to invest and as a result recruit in the euro zone.”

The European Central Bank will hold its monetary policy meeting on Thursday, but it is not expected to introduce more stimulus to the euro zone economy. A cut in the benchmark rate, to 0.25 percent from a record 0.5 percent, is possible, but many say it would be unlikely to do much to encourage lending in troubled countries like Spain and Italy.

Banks in those countries are trying to cope with rising numbers of bad loans and are reluctant to lend no matter how cheaply they can borrow from the European Central Bank. And the central bank remains reluctant to effectively print more money, as the Federal Reserve in the United States and Bank of England have done, because of opposition from Germany to more aggressive action.

Eurostat also reported on Monday that inflation in the euro zone rose to 1.6 percent from 1.4 percent because of a surge in energy prices. While inflation remains below the central bank’s target of about 2 percent, the uptick is likely to provide a further argument against increasing the benchmark interest rate.

Compounding the bank’s challenge, the numbers released showed that there remained a big difference in economic performance among euro zone countries. These differences make it difficult for the central bank to form a monetary policy that is appropriate for all members.

Unemployment rates in Spain and Greece were about 27 percent in May, with youth unemployment remaining well above 50 percent. In contrast, unemployment in Austria was 4.7 percent and in Germany was 5.3 percent. Both had youth jobless rates below 9 percent.

If there was any good news, economists said, it was that unemployment may not go up much more. “An end to the euro zone labor market downturn is not yet imminent,” Martin van Vliet, an economist at ING Bank, said in a note to investors. “However, with the recession across the euro zone petering out, the peak in unemployment should not be too far away, either.”

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Consumer Spending Slipped 0.2% in April

Consumer spending dropped a seasonally adjusted 0.2 percent in April, the Commerce Department said on Friday. That was the first decline since May 2012. It followed a 0.1 percent increase in March and a 0.8 percent jump in February.

A drop in gasoline prices most likely lowered overall spending. Adjusted for inflation, spending ticked up 0.1 percent in April. Still, that was the smallest gain since October.

Consumers also seemed to spend less to heat their homes in April, which may have reduced spending on utilities. April’s weather was mild after an unusually cold March.

Income was unchanged in April, after a 0.3 percent rise in March and 1.2 percent gain in February. Wages and salaries barely grew, while government benefit payments fell.

In the euro zone, unemployment continued its relentless march higher in April, according to official data published Friday, hitting yet another record.

The jobless rate for the 17 countries that use the common currency rose to 12.2 percent, from 12.1 percent a month earlier, with 19.4 million people out of work, according to Eurostat, the European Union statistics agency. Some analysts said the number of people without jobs could hit 20 million by the end of the year.

Separate data from Eurostat showed that inflation in the euro zone rose to 1.4 percent from 1.2 percent.

Most analysts do not expect the European Central Bank to cut interest rates or take other action to stimulate growth when its policy-making council meets in the coming week, but the inflation rate could prompt the central bank to wait for clearer signs that there is no risk of higher prices.

In the United States, the retrenchment in spending indicates consumers may be starting to feel the effect of higher taxes.

But a separate report Friday showed that consumer confidence rose to a six-year high in May, suggesting the decline in spending may be temporary.

Americans are taking home less pay this year because of a two-percentage-point increase in Social Security taxes. A person earning $50,000 a year has about $1,000 less to spend this year. Income taxes on the wealthiest Americans also increased.

Consumer spending drives 70 percent of economic activity. It grew at the fastest pace in more than two years from January through March, helping the economy expand at a 2.4 annual rate during that quarter.

Economists said the latest spending figures suggested that growth might be slowing in the April-June quarter, to around a 2 percent rate. But most still expect growth to improve slightly after that as the effect of tax increases and government spending cuts fades.

Paul Ashworth, chief North American economist at Capital Economics, called it “a sobering report” for people expecting stronger growth. “There will be some modest pickup in the second half of the year, as the fiscal drag starts to ease, but we expect the improvement to be very gradual rather than dramatic.”

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Euro Zone Economy Shrinks for a Second Quarter

Gross domestic product in the euro zone fell 0.1 percent in the three months through September compared with the previous quarter, according to Eurostat, the European Union statistics agency. The downturn was slightly less severe than in the second quarter, when growth contracted 0.2 percent. But it was the fourth quarter in a row of zero growth or worse.

Perhaps more worrisome, the data showed that Spain, Portugal and several other countries remain far from the kind of recovery that would bring increased tax receipts and help them overcome their debt problems. European leaders, who have benefited from a tenuous calm on financial markets in recent months, are likely to face additional pressure to ease the government austerity programs that have undercut growth in Southern Europe.

Economists at Nomura warned of “a depressionary environment in a growing share of the region.” In a note to clients, they said, “This negative loop has the potential to threaten the stability of the whole system.”

Some analysts had forecast a bigger decrease in output. But France registered a surprise uptick in growth and the Italian economy shrank less than expected, moderating the pace of decline across the region. Considered along with sagging factory output and business sentiment, though, the numbers Thursday reinforced expectations that the euro area as a whole could remain in recession well into next year.

“An end to the recession in the euro zone is still out of sight,” Christoph Weil, an economist at Commerzbank in Frankfurt, said in a note to clients.

Germany, which has the largest economy in the euro zone, continued to defy the crisis. The country grew 0.2 percent in the third quarter, slowing from a rate of 0.3 percent in the second quarter.

But data on exports, domestic demand and business sentiment indicate that growth in Germany will slow in future quarters because of falling demand from its neighbors.

A recession is often defined as two quarters in a row of falling output, though many economists say it is important to take other data into account. But with unemployment in the euro area at 11.6 percent and nearly 26 million people out of work, few would dispute that the region is in a deep downturn.

“Leading indicators suggest that the euro zone recession will broaden and deepen in the current fourth quarter,” said Martin van Vliet, an economist at ING Bank.

The European Union, which includes the 17 countries in the euro zone plus 10 more countries primarily in Eastern Europe, managed to return to growth in the quarter as several countries, including Latvia and Lithuania, recovered strongly. Growth for the Union as a whole was 0.1 percent compared to the previous quarter, after a decline of 0.2 percent in the second quarter.

But in Western Europe the economic decline spread to Austria and the Netherlands, which had been growing in previous quarters. The Austrian economy contracted 0.1 percent, while the previously healthy Dutch economy plunged 1.1 percent, catching economists off guard.

One reason for the decline was that Dutch consumers cut back purchases of cars, illustrating how the crisis in the European auto industry is having a broader effect. Slower export growth and a decline in construction also had an effect, according to Statistics Netherlands, the official data provider.

France grew more than analysts forecast, at 0.2 percent, because of increased exports and higher consumer spending. The Italian economy shrank 0.2 percent, which was less than expected and a less severe decline than in previous quarters. Foreign demand compensated for a decline in household spending in Italy, economists said.

There had been some signs in recent months that the euro zone, now in its third year of crisis, was beginning to stabilize. The exodus of money from Spain had stopped and borrowing costs for Spain and Italy have dropped out of the danger zone, thanks to a promise by the European Central Bank to intervene in bond markets. Exports from some of the troubled countries have risen, as companies put more emphasis on foreign markets to offset poor demand at home.

Mario Draghi, the E.C.B. president, said last week that although growth would continue to slow through the end of this year, he expected a slow recovery next year. The data Thursday could raise expectations that the E.C.B. will cut its benchmark interest rate, already at a record low of 0.75 percent, when its policy makers meet next month.

But the E.C.B. has already stretched its mandate to fight the crisis, and the burden may now fall primarily on government leaders. Germany could face added pressure to ease its insistence on drastic budget cuts by Spain, Greece, Italy and Portugal, especially after large protests in those countries this week.

Euro zone finance ministers are expected to meet next week to consider whether to release the next installment of aid for Greece, which it needs to avoid defaulting on its debt. Next month, European heads of government will hold a summit meeting to continue working on ways to make the common currency area more resilient, for example by pooling supervision of banks.

“It is essential that the period of relative calm on financial markets is preserved,” said Marie Diron, an economist who advises the consulting firm Ernst Young. “This will necessitate further quick progress on key reforms, including securing Greece’s financing and moving towards a comprehensive banking union.”

But disputes remain on the future shape of the euro zone, and there is a risk that leaders will not move fast enough. Economists said that much of the slowdown in business activity reflected uncertainty among managers, who do not want to invest until they are more confident of a recovery.

“The confidence shock will therefore continue to hinder investment and hiring decisions,” Mathilde Lemoine, an economist at HSBC, said in a note.

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Growth in Euro Zone Stalls, Slowing Debt Crisis Solution

All of Europe’s main stock indexes lost ground after the data confirmed fears that government austerity programs are taking their toll on the European economy, undercutting efforts to contain the sovereign debt crisis.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter of 2011 compared with the previous quarter, according to Eurostat, the E.U. statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

G.D.P. growth in Germany, which has been the region’s economic locomotive, fell to 0.1 percent compared with the previous quarter, when the economy expanded 1.3 percent, the German Federal Statistical Office said. Analysts had expected growth of 0.5 percent.

“It now looks like growth is slowing in core countries too,” Christoph Weil, an economist at Commerzbank, wrote in a note. “This could intensify the sovereign debt crisis in so far as the readiness and ability of countries with high credit ratings to help crisis-stricken countries will drop as a result. This could trigger a downward spiral in economic growth.”

Instead, what impetus remains in the European economy came from countries like Austria, Belgium and Finland. Even Italy, with growth of 0.3 percent compared with the previous quarter, outperformed Germany in the second quarter.

German and Italian shares led a broad decline in European stocks Tuesday. Germany’s DAX index was down more than 2 percent at midday, as was the FTSE Italia index . The euro fell 0.8 cents to $1.437.

The German economic rebound since the recession of 2009, driven by exports of cars, machinery and other goods to China and other emerging markets, has helped counterbalance weak economies in southern Europe. If Germany slows, the challenges posed by the European sovereign debt crisis will become that much more daunting.

The German figures, which were seasonally adjusted, follow data released Friday that showed that the French economy, Europe’s second-largest after Germany’s, did not grow at all in the second quarter. Slower growth means that tax receipts will also grow slowly, which will make it harder for Germany and France to support countries like Italy and Spain that are finding it increasingly difficult to borrow money at interest rates they can afford.

However, slower growth might lead to lower inflation, which will give the European Central Bank more leeway to keep interest rates low and intervene in bond markets. Since last week, the bank has been buying Italian and Spanish debt on the open market to hold down yields, which had risen above 6 percent, a rate that would have eventually proved ruinous for the two countries.

The slowdown in Germany was caused by slower household consumption and construction investment, the German statistics office said. In addition, imports rose faster than exports and led to a buildup of inventories.

Analysts at Commerzbank said that a warm spring meant that construction projects in Germany had begun earlier than usual, subtracting some activity from the second quarter. Without that effect, growth for the quarter would have been 0.4 percent, they said.

The slowdown in Germany came despite an increase in the number of people employed. The statistics office said 41 million people were employed in Germany, an increase of 553,000 people, or 1.4 percent, from a year earlier, according to preliminary figures.

The slowdown was foreshadowed by results from companies like Deutsche Bank and Siemens in recent weeks that fell short of analysts’ expectations, and it reinforced the feeling that the extraordinarily fast pace of German economic growth was flattening. E.On, the largest German utility, said last week that it might need to cut as many as 11,000 jobs after experiencing its first loss in a decade.

E.On attributed the loss chiefly to the government’s decision to force some of the company’s nuclear power plants to close early, but sales declines in foreign markets like Britain and Hungary also played a role.

Greece is already in recession, while growth in Spain is slowing down more than expected this year. The Portuguese government expects the economy to contract 2.3 percent this year, compared with a previous forecast for a 2 percent decline.

However, Eurostat said the Portuguese economy was stagnant in the second quarter, an improvement over a decline of 0.6 percent in the first quarter.

The euro area trade surplus also improved slightly in June, to €900 million from €200 million in May, Eurostat said. Germany’s surplus of €9 billion remained by far the largest of any European country.

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Deficits Higher Than Expected in Greece and Portugal

BRUSSELS — Almost a year after it adopted sweeping austerity measures as a condition of an international rescue package, Greece has failed to get a grip on its public finances, according to new data released Tuesday, increasing fears that the country may have to restructure its huge mountain of debt.

Greece’s deficit was 10.5 percent of gross domestic product in 2010, according to Eurostat, the European Union statistics agency. The deficit exceeded the 9.6 percent target set last autumn by the government and the European Commission, the E.U.’s executive arm. Public debt swelled to 142.8 percent of G.D.P, Eurostat said.

The figures will be seen by some critics as a vindication of the argument that austerity measures — imposed as part of the €110 billion or $160 billion bailout last May by the E.U. and the International Monetary Fund — are stifling the growth that Greece needs to put its finances back in order.

The Finance Ministry said Tuesday that Greece failed to meet its targets because “the impact of the recession on G.D.P. in 2010 was larger than anticipated,” as was the deterioration in tax receipts and a reduction in social security contributions because of high unemployment.

It said the government remained “committed to achieving” its target of reducing the deficit by 2014 to below 3 percent of G.D.P, the ceiling under E.U. rules for euro zone membership.

E.U. finance ministers have sought to ease Greece’s plight by extending the maturity period of its loans and agreeing to reduce the interest rate it has to pay.

But E.U. officials have ruled out a debt restructuring, pointing out that, among other measures, Greece has committed to raise €50 billion by 2015 through sales of state assets.

“The Greek authorities have shown they are determined to do what is necessary to fulfill the elements of the program,” Amadeu Altafaj-Tardio, a spokesman for the European commissioner for economic and monetary affairs, said Tuesday. Greece’s progress will be reviewed again in mid-May, he said.

Ireland, which has also received international aid, posted a budget deficit of 32.4 percent of G.D.P. in 2010, exceeding the 32.3 percent forecast because of the country’s huge bank bailouts, Eurostat reported.

Portugal, which is negotiating its own rescue, had a deficit of 9.1 percent, higher than the 7.3 percent the commission had predicted last year.

Most other euro zone countries managed to cut their deficits faster than predicted, Eurostat reported.

Spain’s deficit was slightly lower than forecast, at 9.2 percent of G.D.P. Because of the size of the Spanish economy — the fourth-largest in the euro zone, after France, Germany and Italy — investors and E.U. leaders have watched it closely for signs of weakness.

Those fears seem to have receded as Madrid has met its deficit targets. A sale of €1.97 billion in Spanish Treasury bills was well received by investors Tuesday, although at slightly higher interest rates than a similar sale in March.

Britain, which is not in the euro zone, recorded a budget deficit of 10.4 percent of G.D.P., the third highest in the European Union behind Ireland and Greece, Eurostat reported.

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