Unemployment in Europe jumps to a new high

Bloomberg

Unemployment in the euro area jumped to 8.9 percent in March, the highest since November 2005, the European Union statistics office in Luxembourg said yesterday. A separate report showed inflation held at 0.6 percent in April, the lowest since the data were first compiled in 1996.

BASF, the world’s largest chemical company, and Robert Bosch, the biggest car-parts maker, are among companies that are cutting jobs to survive Europe’s worst recession since World War II. With rising joblessness and concerns about deflation, the ECB is under pressure to indicate what other measures it can use to stem the recession.

"If unemployment is higher than expected and rising rapidly, that has major repercussions for both the inflation outlook and the growth outlook, so it’s a figure for the ECB to worry about," said Howard Archer, chief European economist at IHS Global Insight in London. "It cements expectations that the ECB will not only cut rates next week but will take other measures as well."

The euro was off its high against the dollar after the data’s release. The European currency was 0.4 percent higher at $1.3318 at 10:30 a.m. in London yesterday, after reaching $1.3386 earlier.

Spain’s unemployment rate was the highest in the region, at 17.4 percent. Spain, like Ireland, is seeing consumer prices decline on an annual basis, separate data yesterday showed.

The jobless rate in Germany, Europe’s largest economy, increased for a sixth straight month. BASF yesterday said first-quarter profit dropped 68 percent and announced 2,000 job cuts.

The ECB, which has cut its benchmark rate by 3 percentage points since early October to a record low of 1.25 percent, meets next on May 7.

President Jean-Claude Trichet has indicated the central bank will cut its benchmark rate again and promised to announce new non-standard measures to combat the crisis.

Lending to euro-area companies and households declined for a second month in March, extending the worst drop since records began 18 years ago, ECB data showed Wednesday. The European Commission said consumers expect prices to fall over the next 12 months, the first time the price-outlook gauge has been negative since at least 1990.