DUBLIN--(BUSINESS WIRE)--KBRA Europe (KBRA) releases research that highlights how the tightness of the labour market in Europe can cause macroeconomic distortions. From a credit perspective, low unemployment is a positive and reveals efficiencies in the economy. A strong labour market can also help weather economic slowdowns in times of higher interest rates, but tightness with regard to supply issues can subsequently fuel underlying inflationary pressures and negatively impact growth. The headline unemployment rate can also be misleading, especially if it reveals shortfalls in employment, labour force participation, or elevated vacancy rates. In this KBRA report, we shed light on the supply of workers in the euro area and the related challenges for Europe’s macroeconomy.
- Low unemployment is credit positive but macroeconomic challenges emerge when the supply of workers dwindles, which creates a tightness in the labour market. Current labour market dynamics indicate insufficient supply with knock-on effects for inflation and growth.
- Although there has been relatively little impact on sovereign credit to date, the consequences of a tight labour market could potentially lead to macroeconomic distortions and generate negative credit pressure over time. That said, pan-European initiatives have been instigated to help offset these new challenges.
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