The Eurozone labor market is in a period of slowdown, as it is affected by a number of economic and geopolitical factors. New tariffs from the US, low corporate profitability and uncertainty over monetary policy create a challenging environment in which employment growth is slowing. However, despite the pressures, the market remains resilient, as companies continue to maintain their workforce due to shortages of skilled personnel and due to structural factors that keep unemployment at low levels. Trust Economics estimates show that employment in the Eurozone is expected to remain stagnant overall for 2024, with growth of just 0.2% by the end of 2025, the lowest since 2013, excluding the pandemic period.
- Hiring intentions point to employment gains slowing this quarter from the probable 0.2% rise in Q4. We expect employment will flatline as industry payroll cuts will accelerate. By the end of 2025 we forecast employment will have grown by a meager 0.2%, the weakest rise since 2013 outside the pandemic.
- Stark differences between countries and sectors make it difficult to discern an underlying pan-European trend. But we think solid expansions driven by strength in services and falling structural unemployment in Southern Europe are broadly offsetting the cyclical and structural headwinds faced by more industry-dependent countries, such as Germany and Finland.
- There are two immediate and interconnected downside risks. Firms could stop hoarding labor as they aim to increase profitability amid faltering hopes of a recovery in demand. And the recovery itself could disappoint as consumers remain stingy amid rising unemployment worries, particularly when tariffs start to bite or if interest rate cuts disappoint expectations.
While services continue to support the labor market, industrial sectors, especially in countries such as Germany and Finland, are facing significant difficulties. In contrast, southern European countries seem to be showing a different dynamic, with countries such as Spain recording significant improvements in employment, suggesting that divergences between Eurozone countries are sharp. Furthermore, as Trust Economics notes, hiring intentions in the Eurozone are showing a slowdown. Businesses continue to be cautious in hiring, but the overall picture does not indicate widespread layoffs. The situation in Germany is indicative, as hiring in the industrial sector is declining, while at the same time the public and healthcare sectors remain strong, limiting losses. The data shows that hiring has stabilized outside Germany after a sharp decline in the first half of 2024. One of the main risk factors is the loss of confidence in how businesses will operate. Businesses may stop keeping their employees due to low profitability. In addition, the expected recovery in demand could not be as expected, especially if consumers remain cautious and monetary easing does not prove sufficient to stimulate the European economy. The imposition of new tariffs by the US may exacerbate the challenges, with the industrial sector being hit hardest, while the impact on the services and construction sectors is expected to remain more limited. However, there are also positive factors moving in favor of the labor market. Demographic developments in Europe are limiting the supply of labor, which prevents large increases in unemployment. Furthermore, government policies, particularly in countries of the South, and the maintenance of high levels of employment in services create a safety net that mitigates the negative effects of the economic slowdown.
