With the euro zone economy fading, most economists think unemployment will keep increasing over the coming months. Five countries in the euro zone 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 euro zone 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 euro zone 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 euro zone 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 euro zone, at 25.8 per cent. Greece may yet surpass that – its unemployment rate mushroomed to 25.1 per cent 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 per cent. 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 euro zone was Austria’s 4.4 per cent. Germany, Europe’s biggest economy, has a jobless rate of only 5.4 per cent.

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

“High and rising unemployment, and relatively sticky inflation, does not bode well for consumer spending across the euro zone, 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 per cent, but few economists think financially-strained consumers will get any more help from the bank at next week’s monthly policy meeting.