Eurozone Unemployment Creeped Up In July; Inflation Turned Negative In August

Unemployment in the 19-member eurozone creeped up to 7.9% in July from 7.7% in June, despite the reopening of economies across the bloc.

The jobless figures followed reports that the gross domestic product shrank by 12.1% in the second quarter – on a quarter-over-quarter basis – marking the deepest recession in the eurozone’s history.

European youth are particularly vulnerable to the economic fragility – the jobless rate for people under 25 edged up to 17.3% in July from 17.2% in June

Women are faring somewhat worse than men – their jobless rate climbed to 8.3% in July, versus a figure of 7.6% for men.

To bolster the economy, the European Union last month pledged to inject 750 billion euros ($898 billion) into member nations. The initial funds from this stimulus program – subject to various reviews by EU lawmakers – are expected to be disbursed next year.

In addition, the European Central Bank has launched a 1.35 trillion euro ($1.62 trillion) economic revitalization program to purchase governments bonds through at least next summer.

However, the actual number of jobless is much higher since government furlough and wage subsidy programs have artificially inflated employment figures.

According to estimates by ING, the true unemployment rate would be about 10% if such government schemes weren’t in place.

“As short-time work schemes are being extended at the moment, it is likely that the unemployment rate will continue to creep up at a very subdued pace for quite some time,” ING added.

Meanwhile, new cases of COVID-19 have emerged in Spain, France and Germany, prompting fears of renewed containment measures and more lockdowns.

Bert Colijn, senior eurozone economist at ING, pointed out that Europe must also deal with negative inflation – consumer prices dropped by 0.2% in August, from an increase of 0.4% in July. Core inflation, which strips out volatile food and fuel prices, slipped to a 0.4% gain in August from 1.2% in July.

“Lower core inflation is not just noise but that the weak economy is starting to have more of an effect on price growth,” he wrote.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, warned the weak inflation numbers reflect falling demand.

“While the [U.S. Federal Reserve] has recently announced that it will tolerate above-2% inflation, the ECB is struggling even to hit its more modest aim of ‘below, but close to, 2%’ inflation,” Allen-Reynolds said. “Monetary policy in the eurozone will need to remain extremely loose for many more years to come.”

Teeuwe Mevissen, senior market economist at Rabobank in Amsterdam, stated that the inflation figures provides the ECB "more reason to continue what it has been trying to do for a while now, which is to get price levels up,” according to Daily Express.

“From today's figures, you can conclude that they have not been very successful,” Mevissen added. “So any changes in policy would likely be to step up purchases of government bonds even further. The ECB has signaled that they would not like to lower interest rates any further.”