FRANKFURT—Europe’s labor markets are starting to crack. After a year of near-zero economic growth, job creation is slowing and surveys suggest that more businesses in the region are preparing to lay off workers, threatening to further damp growth and drain public coffers. Germany’s unemployment rate has climbed by 0.8 percentage point in recent months to 5.8%, the highest level since 2017 outside the pandemic period.
Joblessness in the U.K. has climbed by a similar amount, to 4.3%, according to national data. That compares with a half-percentage-point increase in U.S.
unemployment, to 3.9% in October. Across the 20-nation eurozone, unemployment is also edging up. For now, the pain is concentrated in the region‘s richer north, especially Germany, whose reliance on manufacturing and exports has become a liability in an era of geopolitical tensions and faltering trade.
Industrial production across the region has declined over the past six months from a year earlier and goods exports, a critical business sector, have slumped. The souring labor-market outlook marks a turning point in Europe’s postpandemic recovery. The continent’s export-oriented business model is being tested by geopolitical tensions, structural change in the large auto industry, and higher borrowing and energy costs.
In the latest sign of trans-Atlantic economic divergence, employment in the U.S. increased by about 600,000 in the three months through June, to about 156 million—more than double the roughly 225,000 increase in the eurozone over the same period, to about 168 million. Any sharp increase in unemployment, long a scourge of Europe’s economy, would place further pressure on government finances.
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