Slowdown in EU job losses defies economists’ predictions

Slowdown in EU job losses defies economists’ predictions

The downturn in Europe’s labour market sparked by the coronavirus pandemic slowed in May, with the unemployment rate inching up to 6.7 per cent across the EU — its highest level for eight months but lower than many economists had predicted.

Following sharp rises in consumer spending in Germany and France in the same month, the employment data released by Eurostat on Thursday encouraged analysts who believe the region is recovering quickly from the deep recession caused by the Covid-19 outbreak.

“With a significant rebound in activity since May, the vast majority of the people on furlough schemes will likely be able to return to their jobs, although possibly with reduced hours for a while, rather than ending up as unemployed in the end,” said Holger Schmieding, chief economist at Berenberg.

But others warn that Europe may only have deferred the full impact of the crisis on its labour market by putting more than 40m workers on furlough schemes, under which much of the wage bill is picked up by governments while they are at home.

“The trivial rise in the eurozone unemployment rate in May reflects the success of short-time working schemes in protecting jobs and an increase in ‘inactivity’ as people have been unable to look for work,” said Jessica Hinds, economist at Capital Economics. “As these factors are both temporary, a significant increase in the unemployment rate is likely over the coming year or so.”

Some workers on short-time work schemes may not be able to return to their jobs and hiring looks likely to stay subdued

Europe’s jobless rate had been falling steadily for seven years since it peaked at more than 11 per cent in 2013. But after hitting a 12-year low of 6.4 per cent in March, the impact of the pandemic caused it to start rising.

In May the number unemployed across the EU rose by 253,000 — 60 per cent fewer than the previous month — lifting the region’s jobless rate to 6.7 per cent, up from 6.6 per cent in April, the Eurostat data showed.

In the eurozone, the jobless rate rose from 7.3 per cent to 7.4 per cent. May’s figures were better than expected; economists surveyed by Reuters had predicted the unemployment rate in the single currency area would hit 7.7 per cent.

Economists believe Europe’s furlough schemes have shielded the region’s labour market from the worst of the crisis, in contrast to the US, where the jobless rate has risen from near record lows of 3.5 per cent to 13.3 per cent in the past few months.

Fabio Panetta, executive board member of the European Central Bank, warned in a speech on Wednesday that “the worst of the impact on labour markets may be yet to come”. 

The ECB forecast last month that the eurozone unemployment rate would rise above 10 per cent in the third quarter of this year, and Mr Panetta said: “Some workers on short-time work schemes and temporary lay-offs may not be able to return to their jobs and hiring looks likely to stay subdued.”

Europe’s job losses in May mostly affected women and young people. The jobless rate rose for women but remained stable for men, while the EU youth unemployment rate rose from 15.4 per cent in April to 15.7 per cent.

France, Spain and Portugal reported falls in their jobless rates. However, Italy’s unemployment rate rose sharply in May as hundreds of thousands of people who had been considered “inactive” during the Covid-19 lockdown started to look for work after curbs were partially lifted. 

The number of people classed as “looking for work” in the country rose by 307,000, pushing the unemployment rate up from a 12-year low of 6.6 per cent in April to 7.8 per cent in May, according to figures released by Italy’s national statistics institute on Thursday.

But there was more positive news from Germany after the Ifo Institute in Munich said that, based on its recent survey of several thousand companies, the number of workers on the country’s Kurzarbeit furlough scheme had fallen from 7.3m in May to 6.7m in June.

Volkswagen said this week that it had stopped using the scheme after previously taking advantage of it to cover some wages for 80,000 employees, who were sent home when the pandemic halted much of the production at Europe’s biggest carmaker.