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Eurozone: Unemployment momentum currently guided by periphery - ING

FXStreet (Delhi) – Bert Colijn, Research Analyst at ING, suggests that for the months ahead, the momentum in the Eurozone job market will be dictated by the recovering European periphery as Germany employment gains are smaller now that its unemployment rate has fallen to very low levels.

Key Quotes

“The unemployment rate in the Eurozone remained stable at 11 percent in August, which was in line with expectations. The decline in the number of unemployed was 33 thousand, which was well below the average decline in unemployment for 2015 so far, which is 118 thousand per month.”

“The trend for this year falls behind last year’s, when the Eurozone lost about 151 thousand unemployed per month. This is surprising, given the fact that the economy is picking up in Europe. July was still a strong month, with a decline of more than 200 thousand people, which was mostly driven by the fast recovery of jobs in Italy and Spain. This month both countries saw much slower improvements in the job market, -196 thousand in July compared to -29 thousand in August. This dominated the Eurozone number.”

“Now that the tailwind in the job market is decreasing somewhat, improvements in domestic demand could be less strong in the second half of the year than in the first. In that sense, the return to negative inflation this month is a blessing as it helps real incomes grow without much help from the labour market. This could help domestic demand improve as the trend in employment growth weakens. The slowing trend in unemployment also shows that the Eurozone economy continues to fragile though.”

“This also indicates the large differences between countries in the cycle. Whereas Germany experiences unemployment below its natural rate and accelerating wage growth, other countries like Spain and Italy are still experiencing the beginning of a recovery with slack markets for a while to come. This will have a large impact on wage growth and inflation in the years ahead.”

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