European jobs market defies expectations as unemployment hits record low

Markets expect the Bank of England to start cutting interest rates in June with three rate cuts expected over the course of the year.
Markets expect the Bank of England to start cutting interest rates in June with three rate cuts expected over the course of the year.

The European jobs market is defying expectations and holding up well despite experts expecting the bloc to tip into a tough recession, fresh figures out today show.

The proportion of people unemployed in the 19 countries using the euro dropped to a record low 6.5 per cent in October from 6.6 per cent in September, according to Eurostat.

Joblessness in the eurozone continued to fall despite countries such as Germany, Italy and France suffering from a historic energy crisis that is cooling economic activity.

European countries have historically relied on cheap Russian gas to power their businesses and provide low cost energy to households.

However, Moscow has sucked supplies out of the market in response to tough economic sanctions designed to hobble the Russia economy after Putin invaded Ukraine.

European countries have scrambled to find alternative suppliers, pushing up gas and electricity prices. Energy costs have fallen recently, but they are still much higher compared to their historic trend.

Europe has filled nearly all its storage, although capacity could be raided rapidly during the colder winter months as households use heating more often.

Analysts said unemployment is likely to rise in the coming months as consumers cut spending in response to raging inflation knocking their living standards. 

“The currency bloc’s economy is faced with a mounting set of economic challenges,” Benjamin Trevis, an economist at the Centre for Economic and Business Research (CEBR), said.

“Inflation, though down on the previous month, stood at ten per cent in November, the second highest level on record. All else equal, high inflation will erode spending power and resultant interest rate increases will slow activity among both consumers and businesses. These developments are likely to translate into higher unemployment during 2023, as firms reduce hiring intentions in line with the weaker wider economy,” he added.

Price pressure eased from 10.6 per cent last month, sparking hopes the European Central Bank will slow the pace of interest rate hikes to 50 basis points from 75 basis points next month.

However, president Christine Lagarde has signalled there is still more work to do to tame inflation.

The final eurozone purchasing managers’ index out today came in below the 50 point threshold that separates growth and contraction, indicating currency bloc is on course to meet the technical recession definition of two consecutive quarters of negative GDP growth soon.