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Thursday, 7 November 2013

Unemployment Rise Tempers Eurozone Optimism

The most recent unemployment figures that trackeurozone unemployment indicated a slight increase in September, the 29th consecutive monthly increase for the region, according to TeleTrade.

That increase, combined with a continued drop in inflation to a four-year low, has put new pressure on the European Central Bank (ECB) to speed up the region’s recovery from recession. The eurozone’s inflation rate dropped to 0.7%, its lowest point in four years and far below the ECB’s target of just under 2%.



The potent combination of growing unemployment and super-low inflation rate could presage a Japan-like deflationary spiral, some analysts warn, all of who call on the ECB to take action to eliminate this risk. Most would argue for a lower interest rate to spur lending and growth.

Unemployment for the region only rose 60,000 in September to 19.4 million, but the fact that the growth in unemployment continues each month discouraged many analysts. For comparison sake, one million more people are unemployed in 2013 than were in 2012, and four million more than in spring 2011.

The 29th straight jump raised the unemployment rate to 12.2%, the highest since the eurozone’s founding in the late 1990s. Some analysts were surprised by the September increase, given the many other pieces of good news about the eurozone economy. 

Jobless rates of 4.9% in Austria and 5.2% in Germany stand in stark contrast to the sky-high rates in Spain (26.6%), and Greece (27.6%). Italy also reached a new high in September, at 12.5%, with a monstrous 40.4% rate among the under-25 set.

All eyes now turn on the ECB’s November 7 meeting, where most economists would argue the ECB should install an aggressive monetary easing to spur growth.  Other experts think the ECB will wait until early 2014 to act and possibly cut interest rates.