The positive evolution of the labor market supports the upcoming interest rate hikes by the European Central Bank despite the moderation of inflation in the euro countries
Since the beginning of 2022, the labor market has stoically resisted the economic crisis caused by the energy supply problems caused by the Russian invasion of Ukraine. the figures published this Monday by Eurostat.
The community statistics agency reveals that – despite high unemployment levels, such as Spain’s 12.4%, which still tops the ranking – the unemployment rate is currently nine-tenths below its pre-pandemic level, when unemployment in February 2020, 7.4% was in euro countries. Even in the European Union (EU) as a whole, the rate also repeated the all-time low of 6% from the previous month in November.
In total, according to Eurostat, there were 10,849 million people unemployed in the euro area at the end of November, 2,000 fewer than the previous month and 846,000 fewer than in November 2021. The countries that continue to push the figure are Spain (12.4%) and Greece (11.4%), far from the third with the highest unemployment, Italy with 7.8% unemployment. Those with the best data for the euro area are Germany (3%), Malta (3.2%) and the Netherlands (3.6%).
Of course, youth unemployment rose by a tenth in November to 15.1%, with 2.35 million people under 25 unemployed in the euro area. Spain remains at the forefront, with 535,000 young people unemployed, 32.3% of the total, the highest rate in the entire EU.
The moderation registered in the very high inflation rates of the European countries could lead the European Central Bank (ECB) to ease the next interest rate hikes. And that may be so, but analysts are confident that the agency will continue this rate hike policy at least for the first tranche of 2023, supported in part by good employment data from the eurozone. The labor market has weathered the crisis and this allows the ECB to continue to raise interest rates to contain inflation without fear that the economy will suffer unduly.
That same Monday, in an article in the institution’s latest bulletin, economists from the ECB warn that wage growth in the coming quarters will be “very strong” compared to eurozone patterns, showing that labor markets are “robust” and that they have not been too affected by the economic slowdown so far. Still, they indicate that high inflation has caused a “significant” loss of purchasing power and that it will continue to fall in the future.
All analysis houses agreed that after the interest rate hike to 2.5% in December, the ECB would make two more increases in this first tranche of 2023: 0.5 point in February and another 0.5 point in March. In other words, raise them to 3.5%, a level the European economy has not seen since 2008, at the start of the major financial and sovereign debt recession.
There is an important thermometer to determine which way to go: the Euribor. And for now, the mortgage indicator shows no signs of stability. On the contrary. After the end of December, the interbank rate is above 3.3% below 3%. By acting as a harbinger of what the official price of money will do, which is 2.5%, there is still room for the ECB to keep increasing it until it reaches around 3.5% and even 4%, thereby assuming that the Euribor can end during this exercise.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
