Eurozone Unemployment Falls to Record Low

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Eurozone unemployment has fallen to an all-time low and justifies the European Central Bank's message that there is no need to rush into interest rate cuts.

Eurostat said the Eurozone's unemployment rate fell to 6.4% in November from 6.5% in October, helped by a fall in the number of unemployed of 99K, bettering the market's consensus expectation for an unchanged 6.5%.

The stubbornly strong labour market underscores economists' expectations for Eurozone wages to remain at above-trend levels over the coming months, potentially thwarting hopes for an imminent fall in regional inflation back to the ECB's 2.0% target.

The data adds credibility to ECB messaging that a rate cut is not imminent.

"With employment expectations rising again, a significant increase in unemployment looks very unlikely over the coming quarters," says Peter Vanden Houte, an economist at ING Bank.

The resilient labour market defies ongoing economic malaise that has seen the Eurozone economy stagnate in the third quarter, with surveys pointing to a similar outcome in the fourth quarter.

While this relatively tight labour market will continue to support consumption, Vanden Houte says it also raises some crucial questions for the European Central Bank.

"To what extent has the speed limit for the eurozone economy been lowered by a dwindling labour supply? And what will be the impact on inflation?" he queries.

"No wonder several members of the Governing Council have stated that the ECB will first want to have a good view of the wage agreements in the first half of 2024 before it can give the all-clear on inflation."