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Euro zone unemployment hits 3-year low - but don't get out the flags yet

Unemployment across the euro zone fell in July to its lowest level in more than 3 years.

The unemployment rate across the 19 euro zone member states averaged 10.9 percent in July, the lowest level since February 2012, data from Eurostat, the European Union's statistical body, showed on Tuesday.

This was a noteworthy drop from June, when unemployment was recorded at 11.1 percent.

A factory in Laupheim, Germany
Martin Leissl | Bloomberg | Getty Images
A factory in Laupheim, Germany

Stubbornly high youth unemployment has blighted the euro zone for years, but took a tumble in July.

The number of people under 25 registered unemployed fell by 336,000 from July 2014 to 3.093 million.

Across age categories, jobless rates were highest in Greece, with one-quarter of all people unemployed, according to the latest available data. Spain followed close behind, with unemployment at 22.2 percent.

Unemployment was lowest in Germany, at 4.7 percent and in Malta, at 5.1 percent.

By comparison, unemployment in the U.K. (which is not a member of the euro zone) read 5.6 percent in July, while U.S. unemployment stood at 5.3 percent.

The unemployment figures were released after slightly disappointing data for euro zone factory activity growth. Markit's final Purchasing Managers' Index (PMI) registered 52.3 in August, lower than flash estimates of 52.4 and below the reading of 52.4 in July. A PMI reading above 50 does, however, indicate growth rather than contraction.

Jessica Hinds, a European economist for Capital Economics, warned it might be too soon for the euro zone to celebrate.

"July's renewed fall in euro zone unemployment offers some hope that the slow recovery in the region's labor market has not gone into reverse," she said in a research note on Tuesday.

"However, we do not expect the euro zone's labor market recovery to gain much pace in the coming months."

She went onto highlight the slow PMI growth and disparate unemployment readings across the region.

"Across much of the region, there remains plenty of slack in the labor market, which will keep wage growth contained and certainly far too slow to provide the necessary boost to euro zone inflation."

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