Eurozone unemployment hits five-year low

EUROZONE unemployment fell to five-year lows in June, data showed yesterday, heralding stronger domestic demand and strengthening the case for European Central Bank interest rate rises.

EU statistics agency Eurostat said unemployment in the 12-nation eurozone fell to 7.8% in June from 7.9% in May, the lowest level since August 2001. Economists had expected an unchanged jobless rate.

“Genuine improvement in the euro zone’s labour market will harden the ECB’s resolve to make monetary policy less accommodative,” said Howard Archer, economist at Global Insight.

The fall in the jobless rate was mainly thanks to 0.1% falls in Germany, France and Portugal.

The unemployment rate in Ireland stood at 4.4%. In Germany, the Labour Office said seasonally adjusted jobless numbers dropped further in July to their lowest since August 2004, confirming the economic upswing had reached the labour market.

Fewer unemployed means higher consumer spending power and confidence, which is likely to fuel economic growth and possibly inflation through demand and pressure on wages.

“Although official data still show the growth to be quite modest, negotiated wages have picked up,” said Lehman Brothers economist Phyllis Papadavid.

“Given all this, there is a case for thinking that household incomes and spending may strengthen, although we remain sceptical about its likely resilience in the face of cooler global growth and tighter euro-area fiscal and monetary policy.”

Markets expect the ECB to raise interest rates by 25 basis points to 3% on Thursday and most expect it to raise them in October and December for a year-end figure of 3.5%.

But some believe the ECB will stop at 3.25% so as not to stifle the economy, which is likely to slow down anyway in 2007 in reaction to higher interest rates, budget deficit cuts in the biggest economies, a strong euro and expensive energy.

In the 25-nation EU unemployment eased to 8.1% from 8.2% in May, but this compares to 4.6% in the US and 4.2% in Japan.

Eurostat estimated that 11.5 million were unemployed in the eurozone in June and 17.7m in the EU.