Europe Unemployment Rate Rises to Highest in a Decade

By Emma Ross-Thomas

July 2 (Bloomberg) -- Europe’s unemployment rate rose to the highest in a decade in May as airlines, banks and builders cut jobs to survive a recession that’s led to soaring losses and fueled bankruptcies.

Unemployment in the 16-member euro region increased to 9.5 percent from a revised 9.3 percent in April, the European Union statistics office in Luxembourg said today. That’s the highest since May 1999 and exceeded the median forecast of 9.4 percent from a Bloomberg survey of 29 economists. A separate report showed European producer prices fell by a record 5.8 percent in May from a year earlier.

Even as Europe’s economy shows signs of recovery from the worst recession since World War II, unemployment will continue to climb, according to forecasts from the European Commission and the Organization for Economic Cooperation and Development. ING Groep NV, the largest Dutch financial-services company, said yesterday it would eliminate a further 800 jobs in addition to 7,000 already announced.

“The downturn could exact a very heavy price on the euro area for some time,” said Colin Ellis, economist at Daiwa Securities SMBC Europe Ltd. “We have not seen the worst in the labor market yet.”

Air France-KLM Group Chief Executive Officer Pierre-Henri Gourgeon said on June 19 that he expects to extend job cuts at the company. In Germany, Europe’s largest economy, company insolvencies led to 254,000 job losses in the first half of the year, according to debt collection agency Creditreform e.V.

Prices Fall

The annual drop in producer prices in May was the biggest since the data was first compiled in 1981 and exceeded the 5.6 percent median forecast of 21 economists in a Bloomberg survey. From the previous month, prices fell 0.2 percent.

Prices at the consumer level in the euro area recorded their first annual decline in June, according to data this week, and the European Central Bank has said inflation will probably remain negative for a few months before rising later in the year. The ECB, which has cut its benchmark interest rate to a record low of 1 percent, will probably leave the rate unchanged at a meeting today, according to a survey of economists.

‘Bolder Policy’

Around 3.4 million people have joined unemployment lines in the euro area in the past 12 months, and Jennifer McKeown, an economist at Capital Economics Ltd. in London, said it “will not be long before the downturn starts to hit wage growth.”

“With producer-price inflation falling to a new record low, consumer-price inflation looks set to remain under intense downward pressure,” she said. “While the ECB seems unlikely to cut interest rates or announce new unconventional measures today, bolder policy support might be needed in future.”

ECB President Jean-Claude Trichet said June 4 that the worst of the recession may have passed. Business confidence in Germany rose to a seven-month high in June and the contraction in manufacturing and services is easing, reports last month showed.

Still, the euro-region economy will shrink 4.8 percent this year and stagnate in 2010, the OECD forecast on June 24. That will push unemployment to 12 percent next year, it said. The EU sees unemployment reaching 11.5 percent in 2010, with the highest rates expected in Spain and Ireland.

Spanish unemployment rose to 18.7 percent in May, the highest in the 27-nation EU, today’s report showed, while the jobless rate in Ireland increased to 11.7 percent.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net