Jobless rate in eurozone to rise into 2011

Unemployment in the 16 nations using the euro currency will continue to rise into 2011 even as a gradual economic recovery takes hold in Europe, the European Commission said yesterday.

In a sign that the worst of the deepest and longest recession in EU history may be over, however, the European Commission revised its growth and unemployment estimates for next year up from previous forecasts.

Growth in gross domestic product in the eurozone, Brussels said, would rise to 0.7 per cent in 2010 and 1.5 per cent in 2011.

Previously the commission had expected a 0.1 per cent drop in GDP next year.

But it also said that unemployment, which traditionally lags growth, would rise to 10.7 per cent in 2010 and hit 10.9 per cent in 2011. The 2010 figure was an improvement on its previous forecast of an 11.5 per cent rate.

"The EU economy is coming out of recession," EU Economic and Monetary Affairs Commission Joaquin Almunia said as the figures were released.

"However, the road ahead is a challenging one," he warned.

"To maintain momentum and support the sustainability of the recovery, it is essential that we fully implement all announced measures and complete the repair of the banking sector."

In August this year, 15.16 million people were out of work in August, putting the unemployment rate at 9.6 per cent, a 0.1 per cent rise over July.

International Monetary Fund chief Dominique Strauss-Kahn said last month that unemployment would peak in advanced economies within 10 to 12 months.

The eurozone figures out yesterday also showed deficits are suffering as governments try to spur growth, predicting the government deficit to increase to around seven per cent in the eurozone in 2010, up from two per cent in 2008.

Indeed a total of 20 of the 27 EU nations have now been warned for breaching the bloc's guidelines, as the recession bit deep, suggesting they believe that now is not the moment to enforce budgetary rigour.

Chopping away at deficits and debt, which have shot up as a result of spending to help economies through the crisis, will have to wait until growth reduces the cost of unemployment and pushes up tax revenues. Yet the head of the commission's economic and financial affairs department, Marco Buti, warned that the jobless rate and deficits will have to be tackled soon to bolster the burgeoning recovery.

"It will be key to tackle the labour-market and debt challenges identified to ensure the transition to a solid sustainable recovery further out," he said.

"Addressing these challenges with determination will allow the EU economy to emerge stronger after the crisis."

The commission's autumn report into the EU economy said that short-term policy measures and the impact of some previous job market reforms had mitigated the impact of unemployment.

But it noted that joblessness routinely climbs for some time after recessions and that this phenomenon cannot be ruled out this time around.