FXstreet.com (Barcelona) - Jennifer McKeown, Senior European
Economist at Capital Economics suspects that the recent rise in the
EZ unemployment rate is a sign of things to come and see the rate
peaking at about 13.5% next year.
She feels that this, when combined with continued fiscal austerity,
is likely to mean pretty sharp falls in household real income and
hence consumer spending.
She highlights that the euro-zone's labour market downturn picked
up pace again in September, with the unemployment rate rising to a
new record high of 11.6%. The deterioration has already been far
sharper than most forecasters had anticipated.
She notes that "the previously reliable employment indices of both
the EC and PMI business surveys point to further annual falls in
employment at around Q2's rate of 0.5%. If the workforce continued
to expand at around its recent modest pace (as we expect), such job
cuts would leave the unemployment rate at 12.5% by Q3 next year."
She feels that there are three reasons to think that the downturn
will be worse than the surveys currently suggest. Firstly, they do
not include developments in the public sector where further job
cuts are already planned in France, Italy and Portugal.
Secondly, she believes that it is likely that employers have yet to
react fully to the economic downturn that has already occurred.
Developments in the labour market tend to lag behind those in the
wider economy and the same applies to survey measure of employment
compared to those of economic activity.
Finally, McKeown feels that the recession will deepen more than
other forecasters anticipate. If the EZ undergoes a limited break
up within the next year as expected, the associated falls in
business confidence and general economic disruption will almost
certainly lead to deeper job cuts.