Eurozone unemployment rate drops to record-low, piling pressure on ECB

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Plummeting unemployment within the eurozone area is piling pressure on the European Central Bank in its fight to cut inflation, an economist has warned.

The unemployment rate throughout the 19 countries which have adopted the euro as their currency returned to its record-low of 6.4 percent in August, down from a revised 6.5 percent in July, according to a release this morning from Eurostat, the EU’s statistics division.

On an annual basis, unemployment in the euro area fell by 0.3 percentage points, from the 6.7 percent rate witnessed in August 2022.

Unemployment was lowest in Malta, recording a rate of 2.7 percent, up from the 2.5 percent seen in July.

Germany, the bloc’s largest economy, recorded the second-lowest unemployment rate of 3.0 percent, unchanged on the month before.

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At the other end of the range, Spain and Greece recorded the highest rates of unemployment in August, at 11.5 percent and 10.9 percent, respectively.

Speaking about the tightening labour market, Cameron Misson, an economist with the Centre for Economics and Business Research (CEBR), said: “This will be of concern to the European Central Bank (ECB), which hiked key interest rates once more to continue tackling heightened inflation.

“A tight labour market will be a key consideration as the ECB assesses whether we have reached the end of its monetary tightening campaign.

“Indeed, today’s data release has not eased the ECB’s tough challenge of balancing its commitment to bringing down inflation with the risk of disproportionately supressing economic activity.”

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The labour market figures followed a separate release from Eurostat last week which showed eurozone inflation fell to its lowest rate in almost two years, slowing to 4.3 percent in September, following a rate of 5.2 percent in August, the CEBR’s analysis pointed out.

While the latest inflation reading will likely encouraged policymakers that monetary policy is successfully limiting price growth, the data on the labour market supports the view there is still some way to go before price stability is achieved in the currency bloc.

A CEBR spokesman said: “Indeed, today’s unemployment figures confirm the view that the labour market in the currency bloc remains tight, an important consideration given the second-round inflationary impacts associated with a low rate of joblessness, placing upward pressure on the headline rate of inflation.”

Separately, UK-based tax consultant Bob Lyddon, a frequent critic of the eurozone, said the figures themselves were misleading.

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He told “Eurozone unemployment is an average and disguises wide variations, with youth unemployment being unacceptably high in several Club Med countries.”

As such, it underlined the probem with making important policy decisions at several levels “removed from economic units whose characteristics widely diverge”, Mr Lyddon stressed.

He continued: “The fact that this is the situation is a testament to the failure of Economic and Monetary Union, and to the deconvergence since the euro was introduced, compared to the gradual convergence that had been achieved thanks to the Exchange Rate Mechanism.

“But the euro needed to be rushed into being in order to gain France’s approval of German reunification after the end of the Cold War, and that has undone much of what was achieved over the preceding 40 years.

“How high is eurozone unemployment? It depends entirely on which individual member state you look at, and that totally mismatches the organisation put in place to manage monetary policy.”

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