IMPROVEMENTS in the US jobs market have highlighted a sharp contrast in economic conditions on either side of the Atlantic.
While official figures from the US labour department showed job creation was stronger than expected in April, the European Commission warned that eurozone unemployment will remain at record levels as the recession across the 17-member bloc persists.
Marcus Bullus, trading director at MB Capital, said: “Given this week’s surprise interest rate cut by the European Central Bank [ECB], it reinforces how the US is moving forward and gaining momentum, while the eurozone remains stuck in first gear.”
The ECB cut its main rate by 0.25 percentage points to a record low of 0.5 per cent on Thursday, but economists described the cut as a symbolic gesture that was unlikely to stimulate lending to small firms.
US employers added 165,000 jobs in April, ahead of the expected figure of about 148,000, boosted by a rebound in retail employment. Revisions to hiring statistics for the previous two months helped reduce the unemployment rate from 7.6 per cent to a four-year low of 7.5 per cent.
But Alpari market analyst Craig Erlam said: “It’s important to point out that, while this is pretty much as good a result as we could have hoped for, the number of jobs added in March and April still falls well below what is required if we’re going to see a sustainable recovery in the US. So we shouldn’t get too carried away at this stage.”
The US unemployment rate has fallen 0.4 percentage points since the start of the year and the Federal Reserve has said it plans to keep short-term interest rates at record lows at least until it falls to 6.5 per cent.
In comparison, the jobless rate across the eurozone stood at 12.1 per cent in March and Olli Rehn, the EC’s vice-president for economic and monetary affairs, said yesterday that the pace of economic recovery would be too slow to reduce the tally this year.
He said: “In view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis.”
Economic output across the eurozone countries is forecast to shrink by 0.4 per cent this year, better than the 0.6 per cent decline recorded for 2012 but worse than the 0.3 per cent fall the EC forecast in February.
In its latest economic forecast, the EC said the sovereign debt crisis in southern Europe will continue to weigh on domestic demand this year, although it expects eurozone GDP to grow by 1.2 per cent next year. For the wider European Union, growth of 1.4 per cent is forecast in 2014.
Germany, the eurozone’s largest economy, is expected to see its GDP growth dip from 0.7 per cent in 2102 to 0.4 per cent this year as demand from other struggling countries falls. France, which registered no growth last year, is predicted to suffer a 0.1 per cent contraction.
The report said: “As domestic demand is still constrained by a number of impediments that are typical of the aftermath of deep financial crises, external demand is set to be the main growth driver this year.
“The headwinds on private consumption and investment are expected to abate gradually, making way for a modest domestically sustained recovery next year.”