Unemployment in the eurozone hit a new record low, while output from German factories rose in November, boosting hopes of a milder economic slowdown than fears in the single currency area.
Figures from Eurostat, the European Commission’s statistics office, showed that the number of people in the labor market without work fell slightly in November. Eurostat reported that 10.849 million workers were without jobs, 2,000 fewer than the previous month and the lowest since records began. The unemployment rate has remained unchanged since October at 6.5 percent.
Meanwhile, Germany’s Federal Statistics Office reported that industrial production rose 0.2 percent between October and November, a reading slightly better than the 0.1 percent expansion forecast by economists polled by Reuters.
Francesca Palmas, chief economist for Europe at Capital Economics, a research firm, said the rise confirmed that German manufacturing strength “held up better than expected” during the fourth quarter of 2022.
On Friday, Germany’s statistics office is set to publish its first estimate of last year’s gross domestic product, which economists expect to show the economy contracted by a modest amount during the last three months of 2022.
The rise in energy prices last spring after Russia’s invasion of Ukraine raised fears of energy shortages and a deep recession in the eurozone. However, economists have steadily raised their growth estimates in recent months on the back of better-than-expected incoming data and falling wholesale gas prices.
Investor sentiment regarding the Eurozone economy also improved. The Syntex market sentiment index, also published on Monday, showed the third consecutive increase in January to the highest level since June 2022. Patrick Hussey, managing director of Syntex, said.
The resilience of the eurozone economy and its labor market it is expected that It leads to more interest rate increases by the European Central Bank.
With unemployment stuck at historically low levels, “the ECB’s hawkish tone is likely to multiply with further tightening in the coming months,” says Paolo Grignani, economist at Oxford Economics.
Markets are pricing in a 50 basis point increase in interest rates when the European Central Bank meets on February 2nd. That would be up from the 2.5 percentage point increases since June last year, which took the deposit rate to 2 percent in December.
A tight labor market could boost wage growth and keep core inflation higher for longer. While the headline inflation rate fell to single digits in December, come in at 9.2 percentCore inflation — which excludes changes in food and energy costs and is seen as a better measure of long-term price pressures — rose from 5 percent to 5.2 percent.
Bert Collin, chief eurozone economist at ING, noted that the strength of the labor market “makes it a key risk for the ECB’s second round inflationary effects.” With a tight labor market, Cullen added, “unemployment is unlikely to rise enough to make labor shortages a thing of the past.”
Between October and November, the unemployment rate in Italy, France and Spain fell by 0.1 percentage point to 7.8 percent, 7 percent and 12.4 percent, respectively. It remained at 3 percent in Germany.
Melanie Debono, chief economist for Europe at Pantheon Macroeconomics, said fiscal support across the eurozone should prevent a “significant increase in unemployment,” despite the economic downturn.