Economic slowdown hits labour market

An analytical review released by the European Commission on 19 December 2008 shows that the economic slowdown is now starting to impact more clearly on EU labour markets.

Quarterly employment growth ground to a standstill in the third quarter of 2008, while the unemployment rate has begun to edge up again. However, the recent labour market deterioration has not affected all parts of the EU to the same extent.

The EU economy is now clearly suffering from the ongoing global financial crisis, which deepened and broadened in the autumn, and the recent housing market downturn witnessed in several Member States. Economic output for the EU contracted marginally (by 0.2%) in the third quarter of 2008, having already come to a standstill in the previous quarter, raising fears of the EU sliding into recession.

The signs are that the economic slowdown is starting to have a stronger impact on labour markets. In the third quarter, employment growth in the EU came to a standstill with zero quarter-on-quarter growth, reflecting underlying employment contraction or stagnation in most large Member States (except Germany and Poland). Year-on-year growth in the EU dropped to 1%: total employment had nevertheless increased by 2.2 million from a year earlier, thanks to a strong performance during the winter of 2007/2008.

Underlying developments at EU level were generally lacklustre performances in the labour markets of most large Member States, apart from Poland. In the third quarter, employment remained unchanged in France and Italy, fell in the UK and contracted considerably in Spain, but continued to expand in Germany and Poland. Among the remaining Member States employment contracted in Denmark, Finland, Latvia and Portugal and increased significantly only in Slovakia.

The fall in the unemployment rate over recent years has now clearly come to an end, with the EU average edging up again to 7% by the third quarter. This has mainly been driven by a sharp rise in Spain over 2008, together with more moderate increases in France, Italy and the UK.

Year-on-year growth in hourly labour costs accelerated to 4.1% in the third quarter in nominal terms, reflecting strong wage increases in most of the new Member States and a strong pick up in wage growth in Germany (in contrast to the previous wage moderation), but this being prior to the decline in inflation in the last quarter of 2008. The overall job vacancy rate fell to 1.9%, indicating that demand for new workers has started to fall in response to the slowdown in economic activity.

The ongoing fallout from the financial crisis and continued declines in business and consumer confidence point to further deterioration in the labour market in the months ahead. Pessimistic employment expectations in industry and construction have now been extended to the services sector, with the outlook for employment and unemployment now decidedly negative.


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