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Unemployment in the eurozone has unexpectedly risen to 6.5 percent as the effects of higher interest rates are beginning to drag down the economy.

According to figures published by the bloc’s statistics arm Eurostat on Friday (3 November), unemployment rose by 69,000 in September, compared to the previous month, to 11 million across eurozone member countries.

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Late last week, the European Central Bank refrained from hiking rates again, and this week, ahead of Friday’s jobs data, ECB chief economist Isabel Schnabel said that the “first signs that the labour market is softening” are becoming apparent.

According to ECB expectations, unemployment will rise further next year as high borrowing costs and lacklustre growth begin to bite. This ends a long period of gradual recovery from the unemployment high of 2013, when years of austerity had pushed millions out of work.

Since June 2022, the ECB has increased its main interest to four percent, up from -0.5 percent, the highest since the euro was launched in 1999.

European Central Bank governing council member Klaas Knot in a speech on Thursday said he believed that the interest rate was a ‘cruising altitude’ where they can remain for some time.”

So far, reduced credit and low growth has not resulted in major job losses, but as hopes of an economic recovery next year start to fade, companies are starting to cut jobs.

Dutch industrial firm VDL Groep said it will scrap 2,000 jobs at VDL Nedcar, and Volkswagen has also announced 2,000 jobs will be cut in its software unit.

Offshore wind businesses across Europe have announced financial losses and cancellations of major projects.

Denmark’s Ørsted, the world’s largest offshore wind developer, has yet to decide whether to go ahead with its Hornsea 3 project, citing interest rates as one of the chief concerns.

Turbine manufacturers have also been hit. Siemens Energy currently seeks a €15bn guarantee from the German government to shore up its balance sheet as banks have become stricter due to higher interest rates.

With unemployment rising and chances of a full-blown recession increasing likely, wage growth is also expected to slow down.

The ECB has forecast wage growth to fall to 3.8 per cent in 2025, down from 5.3 percent this year.