Finance & Business World

Europe’s unemployment rate rose to the highest in more than 10 years in July as companies cut jobs to weather the worst recession in six decades.

Unemployment in the 16-member euro region increased to 9.5 percent from 9.4 percent in June, the European Union statistics office in Luxembourg said today. That was the highest since June 1999 and in line with the median forecast of 28 economists in a Bloomberg survey.

Europe’s economy may struggle to gather strength as some of its largest companies including Siemens AG eliminate jobs to shore up earnings. European Central Bank President Jean-Claude Trichet said last month that rising unemployment may erode consumer spending. Economic confidence rose for a fifth month in August, adding to signs the recession has bottomed out.

“We expect European unemployment to rise further over the coming months, reaching a peak of 11.5 percent around early 2011,” said Sylvain Broyer, chief euro-region economist at Natixis in Frankfurt. “We might only see modest economic growth followed by another phase of contraction next year.”

The euro-area economy may shrink about 4.6 percent this year and around 0.3 percent in 2010, the ECB forecasts. The central bank has injected billions of euros into markets and trimmed borrowing costs to a record low of 1 percent to encourage lending and bolster the economy. The ECB will release its latest economic forecasts on Sept. 3 when council members meet in Frankfurt.

‘Very Cautious’

“We will have to accept that unemployment will have to augment, maybe significantly, and that will have a bearing on the evolution of growth,” Trichet said last month. “We have to remain ourselves very cautious and also very prudent.”

Munich-based Siemens, Europe’s largest engineer, said on July 22 that it plans to cut 1,400 more jobs in order to meet profit targets. Paris-based Air France-KLM Group, the region’s largest airline, is cutting 3,000 positions and putting workers on temporary leave paydayloans.

Fighting unemployment must be “a priority,” ECB council member Ewald Nowotny said yesterday in Alpbach, Austria. While downplaying worries of a “W-shaped recession,” Nowotny said: “What I see is the danger that we’ll have very low rates of positive growth for some time.”

European consumers are reining in spending. Retail sales in the region fell for a 15th straight month in August, the Bloomberg purchasing managers index showed on Aug. 27. Retailers also stepped up job cuts last month as profit margins remained under “severe downward pressure,” the report showed.

Cutting Prices

Carrefour SA, Europe’s largest retailer, on Aug. 28 reported a first-half loss after cutting prices to encourage shoppers. Chief Financial Officer Pierre Bouchut said that day there was “no sign of either improvement or deterioration” and called the situation “difficult.”

European stocks declined as raw-material producers and banks fell. The Dow Jones Stoxx 600 Index was down 1.1 percent at 233.52 at 9:50 a.m. in London. The euro traded at $1.4341 against the dollar, up 0.1 percent on the day.

In Germany, Europe’s largest economy, the number of people out of work unexpectedly declined in August after the government introduced stimulus programs and subsidies to encourage companies to keep workers on payrolls. Total unemployment fell 1,000 to 3.46 million, the Federal Labor Agency said today.

The German unemployment rate remained at 7.7 percent in July, the EU statistics office said. Spanish unemployment rose to 18.5 percent, the highest in the 27-nation EU, while the jobless rate in Ireland increased to 12.5 percent.

Source