Warnings of fragility as EU unemployment at record high

Eurozone unemployment is at a record high and consumer prices are being driven upward by volatile energy and food prices, data showed, underlining the fragility of the bloc’s economic health.

Joblessness in the bloc stood at a record 12.1% in May, with the number of people out of work rising further above 19m, according to Eurostat.

Government austerity programs across the continent have helped fuel the economic hardship and provoked widespread public discontent, especially with more than half of young people unemployed in Greece and Spain.

EU leaders reiterated at a summit last week they would step up the fight against unemployment, which stood at 19.2m in the eurozone in May, and agreed to launch a special scheme for young jobless Europeans.

However, the €6bn plan over two years is unlikely to be enough to tackle youth unemployment that is near 60% in Greece and Spain.

Overall, close to 6m people between the ages of 15 and 24 are without a job, prompting talk of a “lost generation” and concerns of unrest.

There are also wide differences in unemployment rates.

Germany saw its jobless rate fall to 5.3% in May, the second lowest in the single currency area after Austria at 4.7%. Italy and Spain saw a modest increase in joblessness, while unemployment in France was unchanged.

“The big story remains the huge divergence between unemployment rates across countries,” said Jonathan Loynes, the chief European economist at Capital Economics.

“There is nothing to suggest that the euro zone economy does not need additional policy support, though the ECB looks unlikely to oblige this week.”

Meanwhile, June’s inflation reading was the second upward move from a three-year low of 1.2% in April, although it remains beneath the ECB’s target of just under 2%.

Economists expect inflation to remain below the target for the rest of this year, giving the ECB scope to leave interest rates at a record low, although signs of improvement at European factories may stop the bank from cutting rates again.

“June’s rise was driven rather by unfavourable base effects and the ECB has flagged the possibility of short-tern inflation volatility,” said Nick Matthews, a senior European economist at Nomura.

“We expect inflation to drop sharply again in summer.”

Prices of food, alcohol and tobacco products were the key factor driving inflation in June, followed by energy and services, Eurostat said in its first estimate for the month.

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