Disparity in euro zone widens

Some member nations left languishing with poor growth and high unemployment rates.

Visitors pass through the Brandenburg Gate in Berlin, Germany, on Wednesday, Aug. 11, 2010. Germany's economy grew in the second quarter at the fastest pace since the country's reunification two decades ago, driving faster-than-forecast expansion in the 16-nation euro area. Photographer: Michele Tantussi/Bloomberg *** Local Caption ***  715932.jpg
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Unemployment and growth figures released yesterday exposed a widening gap in recovering euro-zone economies, with Germany's export-led rebound leaving less fortunate members of the currency bloc languishing. Euro-zone unemployment remained at 10 per cent for a fifth straight month in July, with no additional jobs to show despite economic growth in the second quarter.

By contrast, German unemployment fell last month to its lowest since November 2008, laying the ground for consumers to spend more and adding to evidence that the economy is outstripping those of its euro-zone peers. Inflation in the euro zone slowed last month, pointing to steady interest rates well into next year, but unemployment remains high and uneven across the region, underlining the two-speed recovery, the data showed.

The EU official statistics agency Eurostat yesterday said 15.833 million people were without jobs across the 16 nations that use the euro. That is more than the combined populations of Greece and Ireland, two of the euro zone's most troubled members. Eurostat said the number of unemployed fell by 8,000 from June to July but was up by 668,000 compared with July last year. Germany's federal labour office said yesterday unemployment fell by a seasonally adjusted 17,000 to 3.193 million. "The development of employment and the higher wages that come with [more productive labour] give Germany's economic recovery substance and its own dynamic," Rainer Bruederle, the economy minister, said after the release of the data.

The adjusted unemployment rate remained steady at 7.6 per cent, while the euro zone's jobless rate remained above those of the US and Japan, which stood at 9.5 per cent and 5.2 per cent, respectively, in July. There is a growing divergence within the euro zone itself. While unemployment fell to 8.4 per cent from 8.5 per cent in Italy and was steady in France at 10 per cent, it rose to 13.6 per cent from 13.3 per cent in Ireland and to 20.3 per cent from 20.2 per cent in Spain.

In the second quarter, the German economy grew at its fastest rate since reunification in 1990 and more than twice as fast as the overall euro zone, where some of its partners face the risk of a double-dip recession. Exports have driven the rebound but consumer morale, long seen as Germany's weak point, is also increasingly upbeat. Business sentiment rose to its highest in more than three years last month.

The euro zone economy grew 1 per cent in the second quarter from the first, its strongest performance for four years. But businesses have yet to add to payrolls as doubts remain about the sustainability and strength of the global economic recovery. Eurostat reported that inflation in the currency area fell to 1.6 per cent last month from 1.7 per cent in July, in line with economists' expectations and comfortably below the target of the European Central Bank (ECB) - just under 2 per cent.

No breakdown of the inflation figure will be available until next month, but economists said the easing was most likely a result of cheaper energy and lower core inflation, which excludes the more volatile energy and food prices. "Inflation will not be an issue for a period of one to two years," said Christoph Weil, an economist at Commerzbank. He said wages, which largely determine inflation, would rise only moderately this year and next because high unemployment and resulting fears of job losses would enforce wage constraint.

The ECB meets on interest rates tomorrow, and economists expect them to be kept at the historic low of 1 per cent. * with Reuters and Dow Jones