FRANKFURT -- Despite a few encouraging signs, the job situation in the euro zone is poised to deteriorate further this year, possibly bringing the unemployment rate to its worst level since the late 1990s, when it hovered above 9%.

The reasons are numerous. Oil prices are close to records, siphoning corporate profits that otherwise could be used to pay new salaries. Growth slowed sharply in the first half of this year, which economists say will keep companies cautious about hiring. Wages are on the rise. Competition from low-cost countries is adding to pressure on employers to limit spending. And, many corporations still feel the need to become more productive with fewer people.

Chronic unemployment is putting the heat on politicians, particularly in Germany, where unemployment is among the highest in the European Union at 11.7% and an increasingly unpopular government faces elections this fall. In its election platform, Gerhard Schröder's Social Democratic Party pledged to focus on reducing unemployment, which it described as Germany's "gravest and most painful" problem, and on creating jobs.

In France, the new prime minister, Dominique de Villepin, has pledged to devote all his energy to fighting unemployment. Last week, he said that he will increase public spending for job-creation programs by 10% in next year's budget.

The unemployment outlook also is increasing pressure on the European Central Bank to cut interest rates at its monthly meeting Thursday. But ECB President Jean-Claude Trichet yesterday suggested that is unlikely. Mr. Trichet warned of "upside risks" to the bank's inflation projections, according to the text of a speech he prepared for the European Parliament. He also stressed that rates in Europe already are at their lowest level in 100 years and giving "considerable" support to the economy.

Unemployment in the 12-nation euro zone was 8.8% in May, according to figures published last week, higher than 5.1% in the U.S. and 4.4% in Japan. It was a slight improvement from 8.9% in the previous month, but economists said that was more a statistical fluke than a change in the trend.

Unemployment in the euro bloc has climbed steadily from 7.8% in early 2001, and many economists expect a further rise by the end of this year. UBS forecasts 9.1%, which would be the highest since August 1999. The Organization for Economic Cooperation and Development said in a report last week that it doesn't expect unemployment to start declining in Germany and France -- which make up half the euro-zone economy -- until next year. Employment growth is stagnating in the region's huge services sector, according to a survey published yesterday that showed growth in the sector unexpectedly slowed in June.

"We are clearly witnessing an economic slowdown and would expect the labor market to get worse before it gets better," said Dirk Schumacher, economist with Goldman Sachs in Frankfurt.

An improvement in unemployment is critical for the health of the euro-zone economy. So far, growth has come primarily from abroad, as faster-growing economies, like the U.S. and China, readily purchased European goods. But this hasn't translated into increased spending at home. Many economists say that any euro-zone recovery is vulnerable to oil and other external shocks until employment picks up.

Continuing news of plant closures and layoffs is making even those people with jobs cautious about spending, an additional damper on an already weak economy. Consumers are more pessimistic about job prospects than at any point in more than a year, according to a survey last week by the European Commission.

In Hamburg, the 550 workers at the aluminum manufacturer Aluminium-Werke GmbH learned last week that most of them would lose their jobs. In a sign of the dismal mood, employees built aluminum crosses and staked them into the grounds around the factory to create an impromptu cemetery. Employee Karl-Heinz Dieck, who helped assemble the crosses, says he and many of his colleagues are facing poverty with the plant's closure. The German government cut unemployment benefits to €345 ($412) a month earlier this year. "You can't live on that," Mr. Dieck says. Previously, the benefits were 60% to 70% of the worker's most recent net salary.

Peter Leonhardt, economist at DekaBank in Frankfurt, says a slight dip in Germany's unemployment rate recently is a result of short-term job-creation programs that mask true developments of chronically high unemployment.

Politicians, perhaps in an effort to deflect the pressure from unhappy voters, have in part begun pointing to the ECB to cut rates, currently at 2%. The ECB no longer explicitly rules out a rate cut, but it doesn't expect to make a move anytime soon -- if at all.

Joining the ranks of those calling for a rate cut, Standard & Poor's warned in a report last week that action by the ECB might already be "overdue" and that a refusal to cut rates would mean the chance "is high that the bank might replicate the serious mistakes made by the Bank of Japan 12 years ago." Then, the Japanese central bank refused to cut interest rates, which many economists say put Japan in a deflationary spiral from which it is still struggling to emerge.