There are some legitimate doubts over the strength of Germany’s labour market. Vacancies have fallen in four out of the last five months, with June down 13.0k. The Eurostat labour market report – released last week – is not quite so up-to-date, but nevertheless painted a different picture: unemployment in Germany fell 17k in May. This marked the biggest decline since January last year.
Three countries are currently enjoying jobless rates below their nadirs of 2007/08 – Germany, Belgium and the Netherlands. The Eurozone unemployment rate continues to drift lower, falling to 7.5% and now sits only 0.2 percentage points above the low from November 2007 to March 2008 (7.3%).
The Italian numbers were perhaps the most significant: according to Istat, employment rose 66.8k in May. The last four months have seen a notable acceleration in hiring.
If the experience of the US is any guide, the Eurozone could see unemployment fall to new secular lows, and still struggle to get core inflation back up to target.
Nevertheless, a recent report from the World Economic Forum suggests that many EU countries are well placed to re-train workers for the digital age. Wages can accelerate as the jobless rate falls. This is more important than the inflation target per se: the CPI and wage data can diverge. The ECB may focus on inflation, but in reality, the low CPI reading is the flipside of technological change that is simultaneously driving wages higher.
