Eurozone unemployment hits record high, seen rising

BRUSSELS (Reuters) - Euro zone unemployment has hit a record high, and job losses are likely to keep climbing as the bloc's devastating debt crisis eats away at businesses' ability to hire workers while indebted governments continue to cut staff.

Around 17.4 million people were out of work in the 17-nation euro zone in April, or 11 percent of the working population, the highest level since records began in 1995, the EU's statistics office Eurostat said on Friday.

"This 11 percent level is going to continue edging up in the coming months and probably until the end of the year," said Francois Cabau, an economist at Barclays Capital who sees the euro zone's economy contracting 0.1 percent this year.

"The economic activity situation tells you the story of the labor market. There's been basically no economic growth since the fourth quarter of last year and indicators are pointing to very weak growth momentum for the second quarter," he said.

ING economist Martin van Vliet said he sees the unemployment rate reaching slightly above 11.5 percent if the economy starts to recover later this year. But if the downturn worsens, "the risk is for an even higher peak in unemployment," he said.

As the debt crisis intensifies, companies in the euro zone are trying to keep their labor costs low as they struggle with falling demand and profits, while a German-led drive to cut deficits and debt is pressuring governments to shrink spending.

But some economists say austerity policies in an economic downturn are self-defeating because governments receive less tax receipts as unemployment grows and must pay out more money in jobless benefits.

"The high level of unemployment is putting cyclical pressure on government expenditure in many of the euro zone's economies and that is contributing to the lack of confidence in many of the euro zone's sovereign debt markets," said Philip Shaw, chief economist at Investec bank in London.

"POISON FOR THE ECONOMY"

Although April's joblessness level was the same as March, as Eurostat revised upwards its earlier reading of 10.9 percent for the month, another 110,000 people were out of work in April and the jobless rate has risen every month over the past year.

While expected by economists polled by Reuters, the data came as a key business sentiment survey showed a deep slump in manufacturing across the euro zone and appeared to suggest the bloc's economy will shrink in the second quarter of this year.

The bloc narrowly avoided recession in the first three months of this year as the economy stagnated but did not contract. Still, the picture masks the wide divisions in the health of Europe's economy, and the same goes for joblessness.

While unemployment fell in Austria to just 3.9 percent in April, it rose to 24.3 percent in Spain, the highest in the euro zone. New data for stricken Greece was not immediately available, having reached 21.7 percent in February.

The number of people out of work also crept up in both France and Italy to 10.2 percent in April, the euro zone's second- and third-largest economies respectively.

Joblessness in Germany fell to 5.4 percent of the working population from 5.5 percent in March, although economists say given the weakening business sentiment, even Europe's largest economy cannot expect unemployment to fall much further.

"More uncertainty (from the debt crisis) would surely be poison for the economy and for companies' willingness to hire staff," Commerzbank analyst Eckart Tuchtfeld wrote in a note to clients.

(Additional reporting by Ben Deighton; Editing by Hugh Lawson)

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