Jobless figures will reveal two-speed eurozone

Eurozone jobless numbers this week may lay bare a fault line scarring the region’s recovery, as evidence of Germany’s employment muscle contrasts with the political quagmire destroying work in Italy.

While the currency bloc’s longest-ever recession has ended, unemployment held at 12% September, according to the median of 36 forecasts in a Bloomberg survey of economists.

Within that data lies a rift between two of its largest economies, with Italy’s rate seen by economists to have reached 12.3%, the highest since records began in 1977 — and more than double Germany’s comparable level.

Italy will “critically determine the fate of the euro area” and the region will not prosper if that country can not restore economic growth, European Central Bank Executive Board member Joerg Asmussen said last week.

Italian officials predict joblessness in the eurozone’s third-biggest economy will keep rising, against a backdrop of a fragmented coalition jeopardised by the legal woes of former premier Silvio Berlusconi.

“We are still in a very discouraging situation for most of the euro area,” said Anatoli Annenkov, an economist at Société Générale in London. “That’s particularly true for Italy, where politics has come to a rest and necessary structural reforms are not kicking in at all.”

The European Union’s statistics office will publish eurozone labour data on Thursday. That is the day after Germany’s Federal Labour Agency releases numbers for Europe’s biggest economy, predicted by all but two of 36 economists to show a 6.9% jobless rate, the same as in August.

Italy’s statistics office, Istat, will release labour numbers for September an hour before the eurozone report.

Last month, data showed the jobless rate among people aged between 15 and 24 reached an historic high of 40.1%.

“Youth unemployment is the true nightmare of our country,” Italian prime minister Enrico Letta said on Oct 21 in Rome. In Washington three days previously, he warned of the risk of a “lost generation”.

Such blight afflicts economies throughout southern Europe, from Greece to Spain.

However, Italy was the country Asmussen singled out in a speech in Milan on Oct 25 as he called on its political class to confront the need for structural reforms.

“The future of the euro area will not be decided in Paris or Berlin, or in Frankfurt or Brussels — it will be decided in Rome,” he said.

“The euro area cannot prosper if its third-largest economy has a potential growth rate of zero.”

Asmussen spoke an hour after Fitch Ratings affirmed Italy’s BBB+ rating with a negative outlook, saying that the cumulative damage from the recession there that started in 2011 may exceed 4% of output.

While the company predicts that slump to cease this year, it said that gross domestic product is now down 8% from its high point in 2007.

“We have to break open our labour markets,” Euro group head Jeroen Dijsselbloem said in a speech in Madrid yesterday. “A further reform of the labour markets is crucial.”

Italian unemployment will probably average 12.4% in 2014, up from 12.1% this year, according to Bloomberg’s monthly survey of economists, which was on published Oct 10. Joblessness will decline in Germany and Spain next year and hold at 12.1% in the eurozone, the survey shows.

Leaders of Italian unions expressed worries this month that foreign investors might eliminate jobs as Spain’s Telefonica tightened its grip on Telecom Italia and Alitalia’s crisis deepened, potentially souring Air France-KLM’s appetite to increase its stake in the carrier.

“Improvement in demand forecasts will likely be the key determinant of job creation in the coming quarters,” said Guillaume Menuet, an economist at Citigroup in London. “Italy and Spain are our top picks from the periphery, assuming that the recovery continues.”

Italian business confidence unexpectedly increased in October, climbing to the highest since Aug 2011. The gauge rose to 97.3 this from a revised 96.8 in September, Istat said. That compares with a median estimate of 96, according to a Bloomberg survey of 15 economists.

Spain emerged from a two-year recession in the third quarter, strengthening prime minister Mariano Rajoy’s efforts to repair the nation’s finances and leave the four-year-old sovereign debt crisis behind.

Gross domestic product in the 17-nation bloc increased 0.3% in the three months through June after six quarterly contractions, and European Central Bank president Mario Draghi expects a further recovery toward the end of the year.