Eurozone Joblessness Hits Record 11.7%; Inflation Eases

Friday, 30 Nov 2012 07:16 AM

 

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Eurozone joblessness has reached a new high and the poor state of the economy is reducing inflation to near two-year lows, raising the prospect of further interest cuts by the European Central Bank.

As the eurozone sinks into its second recession since 2009, the number of people out of work rose by 173,000 in October to almost 19 million, the EU's statistics office Eurostat said on Friday.

That pushed joblessness to the highest level since the euro was introduced in 1999, at 11.7 percent of the working population, illustrating the human impact of a public debt and banking crisis that has reverberated across the world.

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Struggling companies and indebted households have also lost the confidence to spend and invest, evident in the annual consumer price inflation reading for November, which dropped to 2.2 percent in November from 2.5 percent in October.

Consumer price inflation was at its lowest level since December 2010. One of the smallest rises in energy price inflation in a year helped to bring inflation to near the ECB's target of near, but just under 2 percent, opening the door to more rate cuts by the bank.

The ECB last cut its main refinancing rate in July, to a record low of 0.75 percent, and economists in a Reuters poll this week were more divided than ever on whether there will be another rate cut early next year.

"The outlook is still bleak," said Thomas Costerg, an economist at Standard Chartered in London, who sees an ECB rate cut in the first three months of next year.

"We think that ECB President Mario Draghi will leave the door open for more stimulus in the coming months," he said.

The cost of borrowing for banks and households in the eurozone is already at a record low of 0.75 percent and economists question whether further rate cuts will do much good, because of a lack of confidence among banks to lend.

The central bank may decide to postpone a rate cut until after its next meeting on Dec. 6 as it tries to keep markets focused on the benefits of its recently-announced plan to buy the bonds of governments in distress and keep their borrowing costs down.

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The bond-buying program has calmed nervy investors who predicted the break-up of the eurozone just a few months ago and many are moving back into Italian and Spanish bond markets.

But the eurozone's economic reality is one of a slowing German economy, stagnation in France, recession for Italy and Spain and an outright depression in Greece, with no signs of a quick recovery.

© 2014 Thomson/Reuters. All rights reserved.

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