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July 3, 2009 – 6:59AM

The unemployment rate in the 16 euro countries climbed to a 10-year high of 9.5 per cent in May as companies cut jobs to survive Europe’s worst post-war recession, according to EU data on Thursday.

Some 273,000 jobs were lost across the eurozone in May as the unemployment rate rose to the highest point since May 1999, the European Union’s Eurostat data agency estimated.

“Deep and extended economic contraction, depressed business confidence and deteriorating profitability is pushing unemployment up sharply across the eurozone,” said economist Howard Archer at consultants IHS Global Insight.

Although activity in the recession-hit European economy is beginning to pick up, many companies are still shedding workers to adjust to slack demand for their goods and services in Europe and abroad.

The May eurozone unemployment rate was up from 9.3 per cent in April and 7.4 per cent in May 2008.

Meanwhile, in the 27-nation EU the unemployment rate rose in May to 8.9 per cent, hitting the highest level since June 2005 as 385,000 jobs were lost.

Eurostat estimated that in total 21.5 million people were unemployed across the EU in May, of which 15.0 million were in the euro area.

Looking ahead, Jennifer McKeown at research outfit Capital Economics said: “Survey measures of hiring intentions point to a further easing in the rate of job cuts to come.

“But given that labour market developments tend to lag behind those in the wider economy, unemployment almost certainly has considerably further to rise. We expect the rate to reach about 12 per cent next year,” she added.

Likewise, Archer predicted that economic activity would remain too fragile to begin generating more jobs than were being cut “until well into 2010,” with negative implications for the economy.

“Sharply higher, rising unemployment will weigh down on eurozone consumer spending, especially as it will be liable to lead to slowing wage growth,” he said.

A major headache for European politicians for decades, unemployment had been steadily falling ahead of the current downturn, reaching a record low of 7.2 per cent in March 2008.

However, with the rapid deterioration in the economy, the unemployment rate has steadily climbed higher since then.

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