Eurozone unemployment falls in July, but may be turning tide

(Alliance News) - Unemployment in the eurozone dipped in July, data from Eurostat showed, but may be at its lowest for a while as the continent stares down a recession.

ING said the eurozone's labour market remains "historically tight" despite signs of a slowing economy.

"While the strong labour market increases the risk of rapid wage growth fuelling inflation further, there is no evidence of that so far," it added.

According to Eurostat, the eurozone seasonally adjusted unemployment rate was 6.6% in July, down from 6.7% in June. In July 2021, unemployment stood at 7.7%.

This was in line with FXStreet-cited consensus.

"The fall in the eurozone unemployment rate in July to a record low of 6.6% is likely to be as good as it gets. The region faces a difficult winter and recession looms. So the jobless rate is likely to rise from here, even if short-time working schemes cushion the blow." Jessica Hinds, senior Europe economist at Capital Economics said.

The number of unemployed fell by 77,000 in the eurozone over the month, and by 1.6 million from a year previous.

EU unemployment also edged lower to 6.0% in July from 6.0% in June. A year prior, it was 6.9%. The number of unemployed people fell by 113,000 on-month in July, and by 1.9 million on a year before.

ING Senior eurozone Economist Bert Colijn said July's print continues the steady trend of declining unemployment.

"The rate is currently well below the natural rate of unemployment, which suggests upward pressure on wages. At the same time though, there is little evidence of this happening so far. Negotiated wage growth - most Europeans see wages adjusted by collective bargaining agreements - grew at an annual rate of 2.1% in the second quarter, which is still well below what is to be expected given labour shortages and high inflation," he added.

"The labour market is at an interesting crossroads at the moment. Employment expectations from businesses are dropping moderately and the economy is moving towards recession at the moment. Given the tight labour markets in most eurozone economies, the expectation is that some degree of labour hoarding will take place to ensure adequate staffing once the economy recovers."

Wages are also "headed for uncertain times" the ING analyst said.

Colijn added: "We do expect the tight labour market and high inflation rate to result in further rises in wage growth. A recession will dampen the prospects for increases but is unlikely to nullify them all together.

"Still, signs of a wage-price spiral remain absent. If a recession indeed materialises, expect an unemployment rate slightly creeping up from current historically low levels."

By Paul McGowan; [email protected]

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