MercoPress. South Atlantic News Agency

Signs of EU fragile recovery but job losses set to peak in coming quarters

Joaquin Almunia, EU economic and monetary affairs commissioner called for optimism and prudence

European Union (EU) governments should be braced for more job losses, officials in Brussels said Monday as they published forecasts pointing to a slow recovery in the 27-member bloc. Unemployment in the Euro-zone reached 9% in the second quarter and could reach 10% in the coming quarters.

According to the European Commission’s latest forecasts, the EU GDP was expected to grow by 0.2% in the third quarter and by 0.1% in the fourth quarter, after contracting sharply during the first half of the year. Overall, EU GDP for the year was expected to shrink by 4%, in line with previous estimates.

“Unfortunately, unemployment levels will continue to go up, and employment levels will continue to decrease, since the negative impact of the crisis on the labour market has a lag of two or three quarters,” said Joaquin Almunia, the European Union’s economic and monetary affairs commissioner.

His comments came amid the latest EU figures showing that the number of persons employed in the EU had decreased by 0.6 percentage points, or 1.44 million, in the three months to June when compared to the first quarter of the year.

Unemployment in the 16-member Euro-zone has already exceeded the 15-million mark, with the jobless rate in the EU as a whole surging to a four-year high of 9% in April-June period.

Despite marked improvements in the performances of the EU largest economies, unemployment in the EU was likely to exceed the 10% mark next year, officials said.

“The situation has improved - mainly due to the unprecedented amounts of money pumped into the economy by central banks and public authorities - but the weak economy will continue to take its toll on jobs and public finances” Almunia said.

The commissioner said governments should provide training schemes and promote “active labour market policies” designed to ensure that the unemployed can find a job once the economy fully recovers. EU governments have pumped billions of Euros into their economies to mitigate the impact of the bloc’s worst recession in decades.

According to Almunia, additional discretionary spending will have totalled 2.5% of the EU GDP over the 2009-2010 period. If “automatic stabilizers” such as unemployment benefit payments are also taken into account, the size of the EU stimulus package will have amounted to 5.5% of GDP by next year.

But with this additional spending leading to ballooning budget deficits across the EU, Almunia once again urged governments to start thinking about how to rein in public spending.

“We need to define a clear, credible and coordinated ‘exit strategy’ to put public finances progressively back on a sustainable path and to find the necessary resources to increase Europe’s growth and jobs potential,” Almunia said.

The governments of Ireland and Spain are among those that have already announced tax hikes in order to reduce public debt.

Almunia insisted that Monday’s figures should be treated with “a mix of optimism and prudence,” noting that the speed of the recovery would depend on a number of factors, including the fragility of the financial sector and the impact of weak labour markets.

Monday’s interim forecasts were based on the outlook for Germany, Spain, France, Italy, the Netherlands, Poland and Britain, which together account for 80% of the EU economy.

The economy of Europe's locomotive, Germany, is now expected to grow by 0.7% in the third quarter and by 0.1% in the final three months of the year. This means a revised overall forecast of minus 5.1%, compared with previous forecasts of minus 5.4%.

France, Italy and Britain are also seen posting positive growth rates in the second half of 2009, while Spain's recession is set to extend well into 2010.