Nissan workers wearing face masks protest against the closure of a factory in Spain
Nissan workers wearing face masks protest against the closure of a factory in Spain © AP

Europe’s seven-year-long labour market recovery has been abruptly curtailed by the economic disruption caused by the coronavirus pandemic, which has pushed up unemployment across the region and sent it to a four-year high in Germany, figures published on Wednesday showed.

The EU’s jobless rate rose to 6.6 per cent in April, from a 12-year low of 6.4 per cent the previous month, according to Eurostat, its biggest rise for several years, increasing the number of unemployed people by 241,000. In the eurozone, the jobless rate rose to 7.3 per cent, up from 7.1 per cent.

But April’s figures were better than expected; economists surveyed by Reuters had predicted that the unemployment rate across the eurozone would hit 8.2 per cent.

Economists said the figures showed that government-subsidised furlough schemes have shielded the EU labour market from the crisis, in contrast to the US where the jobless rate has risen from near record lows of 3.5 per cent to 14.5 per cent.

“The remarkably small increase in unemployment in the eurozone reflects the success of the government job subsidy schemes and an exodus from the labour force in Italy,” said Andrew Kenningham, economist at Capital Economics.

Chart showing unemployment rate in Europe

More than 40m people across Europe have enrolled in the furlough schemes, in which much of their wages are paid by government while they are sent home — protecting jobs by allowing companies to temporarily idle employees at the state’s expense.

The unemployment rate may also have been reduced because people were unable to actively look for work or gave up on their job hunt during the strict coronavirus lockdowns, meaning they would be classed as inactive rather than unemployed, economists said.

“The participation rate very likely declined since the start of the year, therefore the fall in employment will probably be much bigger than the drop seen in unemployment,” said Nicola Nobile, economist at Oxford Economics.

Total employment in Italy fell by 274,000 between March and April, although its unemployment rate declined from 8 per cent to 6.3 per cent. That reflected a 746,000 increase in the number of economically inactive people, pushing the country’s inactivity rate up from 36.1 to 38.1 per cent.

Separate data published on Wednesday showed that jobless numbers in Germany rose by a seasonally adjusted 238,000 between April and May, increasing the unemployment rate in Europe’s biggest economy from 5.8 per cent to 6.3 per cent — its highest level since 2016.

Germany’s federal employment agency said “demand for new workers has dropped massively” due to the pandemic after 584,000 job vacancies were registered with its job centres in May, down 208,000 from a year ago. 

It said the number of people applying for Kurzarbeit, its short-term leave scheme, increased by just over 1m people in May, on top of the 10.7m who applied in March and April. “But that doesn’t mean that these people will all end up working short-term,” it added.

The slowdown in the number of new applications reflects a broader reduction in the pace of the economic contraction across the bloc. Economic activity indicators for the services sector in both Italy and Spain showed on Wednesday that the sharp downturn since the onset of the pandemic had begun to ease, although both countries are still on course for a substantial shrinkage in the second quarter.

The IHS Markit services purchasing managers’ index for Italy rose to 28.9 in May, from a record low of 10.8 in April. The figure was better than the 26.5 forecast by economists polled by Reuters. A reading below 50 indicates a majority of companies reported a contraction in activity.

The IHS Markit Spain purchasing managers’ index for services rose to 27.9 in May, from a low of 7.1 in April. Economists polled by Reuters expected a rise to 25.

The figures added to analysts’ fears that weakness in inflation will persist, stoking expectations that the European Central Bank will expand its bond-buying plans when it announces its next monetary policy decision on Thursday.

“For the ECB, rising [labour market] slack will likely imply lower inflationary pressure, putting extra pressure on the central bank to act,” economists at Morgan Stanley said in a note.

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