European Economic Highlights: Will Unemployment Reach Another New High?

Filed under: International,News,The Economy,Unemployment |

From The Conference Board– Will the Euro Area unemployment rate rise to another record high?

A French unemployment queue. Photo: ILO/M

A French unemployment queue. Photo: ILO/M. Crozet

One of the more important factors that are hindering the recovery in the Euro Area is the lack of available of capital for lending.

Labor markets would benefit from higher investment levels, as unemployment is still at record highs in Europe at the moment.

Partly due to Basel III, banks are now required to hold more capital and are on top of that are reluctant to lend because of the uncertainty in the Euro Area economy at the moment. This dynamic is keeping investment levels low, as companies find it more difficult to obtain credit.

The European Central Bank’s Bank Lending Survey shed light on credit conditions in the first quarter, which continued to be tight. That being said, the survey did show some moderate improvements.

The expectations for credit standards in the coming months improved somewhat, which is a positive sign.

The demand for loans remains weak as well though, which confirms expectations given the recessionary environment that Europe continues to be in. Easing lending standards would help raise firm investment, but the general economic outlook will have to improve as well in order to encourage risk taking by firms.

 In Spain, the unemployment rate rose to 27.2% in the first quarter and given that the economy is likely to have continued contracting in 2013, it will probably not come down anytime soon.

Besides actual unemployment, underemployment is also becoming a bigger issue in Europe.

A good measure for this is part-time workers that would actually like to be working more.

These figures are increasing. Out of people working part-time, 20.4% in the Euro Area would actually like to work more. This figure represents 4.4% of all people employed. In the U.K., that percentage is even higher at 6.5%, while Spain and Ireland have the highest percentage of underemployed workers in the European Union with 8%.

This shows that the total amount of human resources not used fully is even higher than what is suggested by unemployment figures along.  It is unlikely this situation will improve much over the near term because the Euro Area economy remains too weak to fuel a large improvement in labor market conditions.

Source: The Conference Board

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