Europe: A jobless recovery? Gavin Hewitt

Europe editor

@BBCGavinHewitton Twitter Published duration 5 November 2013

image copyright Reuters

The European Commission rolled out its autumn forecast on Tuesday. There was plenty of optimism, but it was guarded.

Olli Rehn, the EU's Economic and Monetary Affairs Commissioner, declared: "There are increasing signs that the European economy has reached a turning point". He spied confidence gaining strength.

Growth in the eurozone in 2014 is forecast to be 1.1%. That is less than the commission predicted in May, but private consumption has remained subdued and credit in many countries is tight.

But the news for the 26 million out of work in the EU was bleak. The recovery in economic activity is expected "to translate only gradually into job creation", said Mr Rehn.

In the eurozone, it is expected to remain at a record high of 12.2% this year and next. That, also, is a revision upwards from 12.1%.

The hope was that jobless levels would decline next year as the recovery took hold, but European officials are now not so sure.

Indeed, it is possible that the number out of work in the eurozone will surpass 20 million. The best that European officials could offer was a modest decline in unemployment in 2015 to 11.8% in those countries that use the euro.

'Lost generation'

Of course, there will be wide differences between countries.

Unemployment will stay low in Germany and Austria. It is falling in Ireland, and there are some hopeful signs in Portugal.

But the outlook in the weaker countries remains fragile.

image copyright AP

Take Spain. In October, the number of people registered as unemployed grew by 87,000 - as the tourist season wound down.

The government in Madrid rightly points out that, compared with a year ago, the number of jobless claimants has fallen, albeit very slightly.

Growth, however, is at an anaemic 0.1%. The International Monetary Fund has warned that Spain could face five more years with an unemployment rate of over 25% unless firms start reducing wages rather than laying off staff. The prospect of a lost generation remains high.

There are some hopeful indicators in the eurozone. Deficits are coming down. The outlook for manufacturing and services is improving. Exports are the driver behind what growth there is.

There are also some strong headwinds: the strong euro may weaken exports.

Italian Finance Minister Fabrizio Saccomanni has warned the strength of the euro could damage Europe's economic recovery: "The euro is now the strongest currency in the world," he complained.

Drivers of growth?

Then there are the two economies which drive the eurozone: France and Germany. In Mr Rehn's view, they hold the key.

He was asked whether Germany needed to do more to boost domestic demand which would help other countries in the eurozone.

He sidestepped answering the question directly, but he spoke about the need for sustained wage growth in Germany and for boosting investment in sectors like infrastructure.

Official Brussels is pinning a lot of hope that the SPD (Social Democrats) - the new coalition partner in Germany - will push for more domestic spending.

Then there is France.

France will miss the agreed targets to cut its public deficit to 3%. The latest forecasts predict the French government deficit will be 4.1% this year and will still be at 3.7% by 2015.

President Francois Hollande will face pressure to reduce that deficit more quickly. It is hard to see how France, in the short term, can do much to boost the eurozone economy.

Mr Rehn said it was "too early to declare victory: unemployment remains at unacceptably high levels".

He said the labour market typically lagged about six months behind what was happening in the rest of the economy.

But the news is sombre for the millions of young people looking for work.

Europe, for the time being, may have silenced those predicting a eurozone break-up. The concern has "disappeared", said Mr Rehn.