Eurozone unemployment drops, encouraging sign for growth

German economy set for weaker growth, but still showing bright spots

BRUSSELS, Sept 30, (RTRS): The unemployment rate in the eurozone dropped in August to its lowest in more than 11 years,official data showed on Monday, as services appeared to offsetweakening industry, an encouraging sign for the region’s growth.

The jobless rate in the 19-country eurozone fell to 7.4%,the European Union statistics agency said, its lowest since May2008 when the eurozone’s economy began to suffer from thesubprime mortgage crisis in the United States.

The drop from 7.5% in July prolonged a decline begun in August 2014 when unemployment was at 11.5%. Since then, the rate has fallen or has remained stable every month for five years. It also defied market forecasts that the unemployment rate remained unchanged from July.

The eurozone’s economic growth has been slowing, mostly because of falling industrial output over global trade tensions. The unemployment reading partly allayed fears the manufacturing slowdown would spill over into the larger services sector. “This comes as a relief and gives time to the service sector to continue to grow even though the decline in manufacturing production is worsening,” ING economist Bert Colijn said.

Last week, a European Commission confidence indicator showed morale in services rose in September after three consecutive monthly declines. Lower unemployment should push up salaries and consumer spending, thus helping economic growth.

The jobless rate fell in August in the countries where it is highest, a sign that economic differences among countries are shrinking, although they remain wide. In Spain, the unemployment fell to 13.8% in August from13.9% in July.

In Italy it went down to 9.5% from 9.8%. In Greece, the country with the highest rate, it dropped to 17.0% in June, the last month for which data are available there.

In Germany, the eurozone’s largest economy, the rate was stable at 3.1% in August. The actual number of people out ofwork in Germany dropped by 7,000, a minor change that did not affect the rate.

Meanwhile, Germany’s leading economic institutes have lowered their growth forecast for the economy for this year, sources told Reuters on Monday, adding to fears that a recession among export-driven manufacturers is spreading.

The institutes, whose forecasts feed into the government’s own growth estimates, see growth of 0.5% in 2019, two sources said, down from an earlier figure of 0.8%.

Germany’s export-reliant manufacturers are suffering from a slowing world economy and business uncertainty linked to a trade conflict between the United States and China as well as Britain’s planned exit from the European Union.

The institutes, which will present their new forecasts on Wednesday, expect growth of 1.1% in 2020, one of the two sources said, down from a projection of 1.8% in April.

The German economy, Europe’s largest and a bellwether for the economic health of the eurozone, is still showing bright spots despite expectations of a recession in the third quarter.

Data published earlier on Monday showed German unemployment fell unexpectedly in September and retail sales rose in August, temporarily allaying concerns that a manufacturing slump is taking its toll on a consumption-driven growth cycle.

Data from the Federal Labour Office showed the number of people out of work fell by 10,000 to 2.276 million in seasonally adjusted terms. That compared with the Reuters forecast for a rise of 5,000.

The office revised down the joblessness figures for August to a rise of 2,000 from a previously reported increase of 4,000.

The jobless rate in September held steady at 5.0% – just above the recordlow of 4.9% reached earlier this year.

Labour Office head Detlef Scheele said the economic downturn was partly reflected in the joblessness data. “But all in all, the labour market is still in a robust shape,” he added.

Employment remains high but is losing momentum while the demand of companies for new employees continues to slow down at an elevated level, Scheele said.

In a further positive sign for domestic demand, retail sales rose 0.5% in real terms in August after an upwardly revised drop of 0.8% the previous month, data from the Federal Statistics Office showed.