Euro Zone May Unemployment Hits 10-Year High

Euro zone unemployment crept up to its highest level in 10 years in May, data showed on Thursday, casting a shadow on prospects for any quick recovery from the worst economic recession since World War Two.

The unemployment rate in the 16-nation euro zone rose to 9.5 percent from April's 9.3 percent as 273,000 people lost their jobs in the month, bringing the number of those out of work to 15.013 million, European Union statistics office Eurostat said.

"For the euro area this is the highest rate since May 1999," Eurostat said of a figure higher than the 9.4 percent expected by economists polled by Reuters and which signals a likely fragility in consumer demand that is key for recovery.

Eurostat calculated that 3.4 million people in the currency zone lost their job in the year from May 2008, with 5.1 million joining jobless queues across the 27-nation EU.

The data came as the European Central Bank was meeting in Luxembourg, with economists expecting it to leave its main interest rate on hold at 1.0 percent, a record low.

Separately, Eurostat said prices at euro zone factory gates logged their biggest annual fall in May, pointing to continued negative inflation in coming months.

Producer prices fell 0.2 percent month-on-month and 5.8 percent annually, the biggest yearly drop since the data series started in 1982.

A 14.0 percent year-on-year plunge in energy prices drove the annual decline.

Economists polled by Reuters had expected producer prices to rise 0.1 percent on the month and fall 5.6 percent on the year.

Producer prices show inflationary pressures early in the pipeline as their moves are usually reflected later in consumer prices, which the ECB wants to grow by just under 2 percent year-on-year.

Euro zone inflation dipped into negative territory for the first time in June as consumer prices fell 0.1 percent year-on-year, data showed on Tuesday.

The European Commission expects unemployment in the euro zone to rise to 9.9 percent this year from 7.5 percent in 2008 and to 11.5 percent in 2010.

The Commission expects the euro zone economy to return to growth in year-on-year terms from the middle of 2010.

Spain had the highest unemployment rate in the EU at 18.7 percent, up from 18.0 percent in April, followed by Latvia on 16.3 percent, up from 15.3 percent.

In Germany, the euro zone's biggest economy, unemployment remained unchanged at 7.7 percent, while in France, the second-biggest, it rose to 9.3 percent from 9.1 percent.

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