Unemployment should continue to subside into 2025

Despite an expected cooling of European labor markets, overall employment dynamics are set to remain resilient, which will underpin a relatively more resilient performance in consumer spending that will boost B2C demand. Multinationals should note, however, that skill mismatches and qualification shortages will continue to pose long-term operational challenges, which will likely be exacerbated by the upcoming acceleration in economic activity in Q3 2024 and, for Southern European markets, the decline in labor participation rates. Easing nominal wage growth should alleviate some persisting labor cost issues, but overall pressures will remain historically elevated and acute in sectors that experience shortages.


  • Harmonized unemployment across the EU has remained flat into 2024 at 5.2% in both January and February 2024, defying expectations of a more pronounced shock on European labor markets.
  • Individual labor market dynamics have begun to ease slightly, with unemployment in Poland reaching a 10-month high at 5.4% in February 2024, and 3.9% in the Czech Republic.
  • In Germany, the seasonally adjusted unemployment rate also reached 5.9% in the period from November 2023 to March 2024, from 5.6% rate in the period between January and May 2023.
  • Unemployment in Italy and Spain remained structurally elevated, but below historical averages of the last 10 years, with rates in both markets continuing to register falls through the start of 2024.
  • Labor participation rates in Southern Europe have fallen in Q4 2024, however, indicating that some of the drop in unemployment might come on the back of a drop in the labor force itself.
  • Elsewhere in Europe, including Central Europe, Germany, France, and the UK, labor participation rates have either remained resilient or have seen a meaningful increase, suggesting an increase in the available labor pool.

Our View

Despite the sharp tightening of monetary policy across Europe, European labor markets have remained relatively resilient. A drop in job vacancies across key European markets in Q4 2023 and a drop in hiring intentions suggest that labor markets are gradually cooling off, which should translate into a small increase in unemployment through Q2 2024 and will reduce upward pressure on nominal wage growth, which, in most markets, should perform below 2023 levels. The increase in unemployment should be only temporary, however, as the return of seasonal employment at the end of Q2 2024 and Q3 2024 should prevent a sharper increase in unemployment and will likely reverse the ongoing trend. Expected cuts by the European Central Bank should underpin a strong labor market recovery, and unemployment rates should ease further through 2025. Additionally, the decline in labor participation rates across Southern Europe will likely improve through the upcoming summer months, but it also signals that some of the seeming resilience in labor markets in Spain and Italy comes on the back of a shrinking labor pool; as such, the drop in unemployment at the start of Q1 2024 is unlikely to underpin a strong performance in consumer spending through Q2 2024.

Still, despite the ongoing cooling of labor markets, companies across the EU continue to report skill shortages in key industries, such as manufacturing, ICT, and professional services. The problem is particularly acute in Italy, Central Europe, and Spain, which will continue to present operational challenges when it comes to maintaining existing capacity, staff retention, and labor costs. The upcoming monetary rate cuts will likely exacerbate the issue in Q3 2024, signaling the problem is likely to persist in the long term and incentivizing companies to revisit their staff retention strategies or pursue greater automation to alleviate a build-up in operational challenges.

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