LONDON — Mass unemployment in Greece and Spain, where nearly half of those under 25 are out of work, sent the jobless rate across the 17-nation eurozone on Thursday to its highest level since the euro was established in 1999.
Eurozone unemployment rose to 10.7 percent from an upwardly revised 10.6 percent the previous month, according to Eurostat, the European Union's statistics office. The change was unexpected and is likely to trigger renewed concerns over the outlook for the wider economy.
If unemployment – and the accompanying fear of unemployment – is rising, consumers may rein in their spending. This could further dent an already-contracting eurozone economy that's reeling from widespread national austerity measures in response to too much government debt.
Consumers' appetite to open their wallets will likely be further constrained by the accompanying news from Eurostat that inflation in the eurozone unexpectedly also rose in February to 2.7 percent from the previous month's 2.6 percent.
The markets had been pricing in no change from January, and the increase takes inflation further above the European Central Bank's target of keeping price rises at just below 2 percent. Inflation has been above target for 15 months now.
"This is particularly bad news for consumers as they are not only facing high and rising unemployment but also still squeezed purchasing power," said Howard Archer, chief European economist at IHS Global Insight. "It had been hoped that eurozone consumer price inflation would be heading down markedly by now but these hopes are being scuppered by high oil prices."
In recent weeks, oil prices have edged up to nine-month highs on the back of brighter economic news out of the U.S., the world's largest economy, and ongoing tensions over Iran's nuclear plans. Without the recent increase, analysts reckon inflation would be much closer to the ECB target, which could have given the ECB some leeway in cutting interest rates further.
Since the ECB's primary role is maintaining its measure of price stability, persistently high inflation has reined in market expectations of any further interest rate reductions any time soon. Early this year, there had been a growing consensus that the ECB would push its benchmark interest rate below 1 percent for the first time since its creation 13 years ago.
The ECB holds its monthly policy meeting next week and all expectations are that it will keep its benchmark rate unchanged at the record low of 1 percent, especially after its massive injection of cash Wednesday into the banking system.
"The latest eurozone data revealed a combination of stubborn inflation and rising unemployment at the start of the year, suggesting that the recent rebound in consumer sentiment may falter before long," said Ben May, European economist at Capital Economics.
The figures come as EU leaders gather in Brussels to discuss a strategy to boost economic growth. Eight of the 17 countries in the eurozone are, according to the European Commission, expected to contract during the first three months of 2012.
The eurozone economy contracted 0.3 percent in the final three months of 2011, though recent indicators have suggested that it may avoid a recession – defined as two consecutive quarters of negative growth.
Still, those sort of projections aren't likely to do much to help turn round the unemployment rate in the eurozone.
Spain had the highest unemployment rate in the eurozone at 23.3 percent in January, while Greece's edged up to 19.9 percent in November, the last available figures for the debt-ridden country at the center of the European debt crisis. In Spain, 49.9 percent of youths under 25 are unemployed and Greece isn't far behind at 48.1 percent.
Among the stronger eurozone economies, Germany's unemployment stood at 5.8 percent, France's struck 10 percent and Austria hovered at 4 percent.
Europe's unemployment rate has been steadily ticking up all year as the wider economy wanes in the face of a protracted debt crisis and widespread government austerity measures.