(annual percentage changes; percentage balances; seasonally adjusted)
-7 -6 -5 -4 -3 -2 -1 0 1 2
-70 -60 -50 -40 -30 -20 -10 0 10 20 employment growth in industry
(excluding construction) (left-hand scale) employment expectations in manufacturing (right-hand scale)
2004 2005 2006 2007 2008 2009 2010
-25 -20 -15 -10 -5 0 5 10 15 20
-25 -20 -15 -10 -5
0 5 10 15 20 employment expectations in construction
employment expectations in the retail trade employment expectations in the services sector
2004 2005 2006 2007 2008 2009 2010 Sources: Eurostat and European Commission Business and Consumer Surveys.
Notes: Percentage balances are mean-adjusted. From May 2010 onwards, European Commission business survey data refer to the NACE Rev. 2 classifi cation.
Box 6
RECENT UNEMPLOYMENT DEVELOPMENTS IN THE EURO AREA This box discusses unemployment developments in the euro area and in selected euro area countries since 2008, based on information from the European Union Labour Force Survey (LFS). Chart A provides a snapshot of the unemployment rate in the euro area countries in the second quarter of 2010 (the latest quarterly data currently available from the LFS) and immediately before the start of the latest recession. From a level of 7.6% in the fi nal quarter of 2007, the euro area unemployment rate rose to 10.0% in the second quarter of 2010 – the highest level recorded since the third quarter of 1998.
At the country level, Spain and Ireland saw the largest increases in the unemployment rate, mainly driven by the adjustment in the construction sector. These two countries rank among the euro area countries with the highest unemployment rates (20% and 14%
respectively in the second quarter of 2010), together with Slovakia (14.4%), Greece (12%) and Portugal (11%). Within this group, a slightly higher labour force participation rate
contributed to the increase in unemployment in Spain, Greece and Slovakia, while labour supply sharply decreased in Ireland (refl ecting the severity of the decline in output) and, to a lesser extent, in Portugal.
At the same time, the unemployment rate rose only moderately in a large number of euro area countries. In particular, from the fi nal quarter of 2007 to the second quarter of 2010 the unemployment rate increased by 2 percentage points in Italy (reaching 8.5%) and by 1 percentage point in France and Belgium (rising to 8.9% and 8.2% respectively). Several factors may explain the somewhat weaker impact of the crisis on unemployment in these countries, including the reduction in labour supply – partly refl ecting an increase in discouraged workers – and a notable increase in part-time employment.
Conversely, Germany appears to be an exceptional case, since its unemployment rate has actually declined over the period under review. The more favourable evolution of unemployment in Germany – not only compared with other euro area countries but also compared with previous recessions – was mainly due to a reduction in the number of hours worked per person employed in response to the sharp fall in activity rather than a decline in employment as in previous downturns. This, in turn, was related to both government-sponsored short-time work measures (“Kurzarbeit”) and a higher degree of fl exibility in working arrangements (such as individual
Chart A Unemployment rates in the euro area and euro area countries
(percentages of the labour force)
25
20
15
10
5
0
25
20
15
10
5
0 Q4 2007
Q2 2010
1 2 3 4 6 7 8 9 10 11 12 13 14 15 16 17 18 1 ES
2 SK 3 IE
5 4 GR 5 PT 6 FI
7 FR 8 IT 9 BE
10 SI 11 DE 12 MT
13 CY 14 AT 15 NL
16 LU 17 euro area 18 EE Source: European Union Labour Force Survey.
Note: The countries are ordered by the level of their unemployment rate in the second quarter of 2010 (Estonia is shown separately).
Output, demand and the labour market
working time accounts). Moreover, relatively subdued wage growth, in conjunction with improved profi tability, supported temporary labour hoarding, particularly in those sectors that had previously faced severe labour shortages. At the same time, participation has increased in Germany, mainly owing to women entering the labour market.
The 2008-09 recession had a relatively larger impact on unemployment in specifi c socio-economic groups (see Charts B, C and D).1 The 14% average annual growth of aggregate unemployment masks the fact that male unemployment increased by over 19% in the euro area, compared with a growth rate of 8% recorded for female unemployment. In addition, over the same period the deterioration in the labour market mainly affected young people (youth unemployment rose by 13%) as well as those in the 25-54 age band (15%). Finally, job losses were greatest among the least skilled workers, who saw an 18% increase in unemployment.
Within each group, the signifi cant deterioration in the euro area labour market over the period 2008-09 was largely driven by developments in Spain, while other euro area countries (except Germany) also contributed to the increases, albeit to a lesser extent. The latest LFS data suggest that there was some improvement in the year to the second quarter of 2010, with slower growth in unemployment across all the above-mentioned groups.
Chart E shows that the duration of unemployment sharply increased in the euro area: the number of unemployed persons who have been without a job for a year or more increased by 30% in the year to the second quarter of 2010, compared with the 4% average growth recorded over
1 For a detailed discussion of the main factors explaining these developments, see the box entitled “The composition of the recent decline in employment in the euro area”, Monthly Bulletin, ECB, September 2009.
Chart B Euro area unemployment growth by gender
(annual percentage changes; percentage points)
25
20
15
10
5
0
-5
25
20
15
10
5
0
-5 Germany
France
other euro area countries Spain
Italy euro area
2008-09 Q2 2010
Male Female Male Female
Sources: Eurostat and ECB calculations.
Notes: The bars refer to the contribution of each country (in percentage points). The data for 2008-09 refer to the average annual percentage change over the two-year period.
Chart C Euro area unemployment growth by age band
(annual percentage changes; percentage points)
20
15
10
5
0
-5
-10
20
15
10
5
0
-5
-10 Germany
France
other euro area countries Spain
Italy euro area
15-24 25-54 55-64 15-24 25-54 55-64
2008-09 Q2 2010
Sources: Eurostat and ECB calculations.
Notes: The bars refer to the contribution of each country (in percentage points). The data for 2008-09 refer to the average annual percentage change over the two-year period.
4.3 THE OUTLOOK FOR ECONOMIC ACTIVITY
Looking ahead, recent data releases and surveys generally confi rm the assessment that the positive underlying momentum of the recovery in the euro area remains in place. The continued recovery of the world economy, and its impact on the demand for euro area exports, should continue to support the euro area economy. Private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the fi nancial system. However, the ongoing process of balance sheet adjustment in various sectors is expected to dampen the pace of the recovery.
This assessment is also in line with the December 2010 ESCB staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.6% and 1.8% in 2010, between 0.7% and 2.1% in 2011, and between 0.6% and 2.8% in 2012. Compared with the September 2010 ECB staff macroeconomic projections, the range for real GDP growth this year the period 2008-09. The rise in long-term unemployment is a cause of concern and requires an effective policy response in order to avoid a persistent increase in structural unemployment.
Policies that promote wage moderation and reduce wage rigidities, together with active labour market policies that facilitate labour market transitions via improved matching effi ciency, as well as reforms that strengthen the labour market attachment of the long-term unemployed, will reduce structural unemployment and decrease the risk of the erosion of human capital associated with long spells of unemployment.
Chart D Euro area unemployment growth by level of educational attainment
(annual percentage changes; percentage points)
25
20
15
10
5
0
-5
25
20
15
10
5
0
-5 Germany
France
other euro area countries Spain
Italy euro area
Low Medium High Low Medium High
2008-09 Q2 2010
Sources: Eurostat and ECB calculations.
Notes: The bars refer to the contribution of each country (in percentage points). The data for 2008-09 refer to the average annual percentage change over the two-year period.
Chart E Euro area unemployment growth by duration
(annual percentage changes; percentage points)
35 30 25 20 15
-15 10
-10 5
-5 0
35 30 25 20 15
-15 10
-10 5
-5 0 Germany
France Italy
other euro area countries euro area
Spain
Less than 12 months
12 months and over
Less than 12 months
12 months and over
2008-09 Q2 2010
Sources: Eurostat and ECB calculations.
Notes: The bars refer to the contribution of each country (in percentage points). The data for 2008-09 refer to the average annual percentage change over the two-year period.
Output, demand and the labour market
has narrowed and shifted towards the upper end of September’s range, while the range for 2011 is slightly narrower. With uncertainty remaining elevated, the risks to this economic outlook are tilted to the downside. On the one hand, global trade may continue to perform more strongly than expected, thereby supporting euro area exports. In addition, the level of business confi dence in the euro area remains relatively high. On the other hand, downside risks relate to the tensions in some segments of the fi nancial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.