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Nick Kounis, head of financial markets research at ABN AMRO, suggests that one of the few areas of strength in the eurozone has been the labour market as the employment was up by 1.2% yoy in Q2, down from its peak growth rates, but still healthy.

Key Quotes

“Unemployment continues to drop. It was down to 7.4% in August from 7.5% in July, and down around 0.6 percentage points over the last year. Unfortunately, the labour market is a lagging indicator and the sharp slowdown in the economy is likely to become increasingly visible. Indeed, a number of good leading indicators of the labour market suggest a more significant slowdown is imminent.”

“The employment index of the composite PMI fell to 51.4 in September, from 51.7 in August and compared to a level of 55.2 a year ago. It is consistent with job growth slowing to around 0.6% yoy in the next few months. Meanwhile, temporary employment is pointing to a sharper deterioration in labour market prospects over the next year.”

“Temporary employment leads overall employment as it is the easiest and quickest way to adjust staff levels on the both the way up and the way down. Temporary employment has slowed sharply over the last year (in Q2 it contracted by 2% yoy) and it points to a sharp slowdown in total employment growth over the next year, as well as a significant rise in unemployment. This will make the slowdown in the eurozone economy more protracted than the ECB and consensus expects, in our view.”