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Eurozone unemployment hits new record of 11.6 percent as economy slips toward recession

Unemployment in the 17-country eurozone hit a record high of 11.6 percent in September, official figures showed Wednesday, a sign the economy is deteriorating as governments struggle to get a grip on their three-year debt crisis.

The rate reported by Eurostat, the EU's statistics office, was up from an upwardly revised 11.5 percent in August. In total, 18.49 million people were out of work in the eurozone in September, up 146,000 on the previous month, the biggest increase in three months.

While the eurozone's unemployment rate has been rising steadily for the past year as the economy struggled with a financial crisis and government spending cuts, the United States has seen its equivalent rate fall to 7.8 percent. The latest U.S. figures are due Friday.

With the eurozone economy fading, most economists think unemployment will keep increasing over the coming months and that the deteriorating economic picture will soon spook investors again after a brief hiatus.

"Financial markets have calmed somewhat, but we expect that the deteriorating economy will soon enough lead to more crisis headlines," said Tim Ohlenburg, senior economist at the Centre for Economics and Business Research.

Five countries in the eurozone are already in recession — Greece, Spain, Italy, Portugal and Cyprus — and others are expected to join them soon.

The region as a whole is expected to be confirmed to be in recession when the first estimate of eurozone economic activity in the third quarter is published mid-November — a recession is officially confirmed after two consecutive quarters of negative growth.

"With surveys suggesting that firms are becoming more reluctant to hire, the eurozone unemployment rate looks set to rise further, placing more pressure on struggling households," said Ben May, European economist at Capital Economics.

Recession and unemployment make it more difficult for the eurozone to deal with its debt problem — governments need to pay more benefits to the jobless and receive fewer tax revenues. That could push countries to take even more austerity measures, which in turn weighs on economic activity.

Once again, Spain held the ignominious position of having the highest unemployment rate in the eurozone, at 25.8 percent. Greece may yet surpass that — its unemployment rate mushroomed to 25.1 percent in July, the latest available figure, and is due to increase in the face of what many economists are calling an economic depression. The country is forecast to enter its sixth year of recession next year.

Both countries, which are at the heart of Europe's three-year debt crisis, have youth unemployment above 50 percent. That risks creating a lost generation of workers and is straining the countries' social fabric. Extremist political groups in Greece and regional separatist parties in Spain have grown in popularity as the economy worsened.

Concern over the social impact of unemployment has also weakened governments and hobbled political decision-making.

In Greece, the three parties in the coalition government have tried for months to agree on an austerity package that is necessary for the release of bailout loans to prevent the country's bankruptcy.

The lowest unemployment rate in the eurozone was Austria's 4.4 percent. Germany, Europe's biggest economy, has a jobless rate of only 5.4 percent.

Separately, Eurostat reported that inflation in the eurozone fell modestly to 2.5 percent in the year to October, from the previous month's 2.6 percent. Inflation is still above the European Central Bank's target of keeping price rises just below 2 percent.

"High and rising unemployment, and relatively sticky inflation, does not bode well for consumer spending across the eurozone, especially as consumers in many countries are also facing muted wage growth and tighter fiscal policy," said Howard Archer, chief European economist at IHS Global Insight.

Above-target inflation has not prevented the ECB cutting its key interest rate to a record low of 0.75 percent, but few economists think financially strained consumers will get any more help from the bank at next week's monthly policy meeting.