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Unemployment and Inflation Rise in the Euro Zone
European economies are struggling to recover from the most severe and synchronized recession since WWII amid the slowdown in growth and high debt prevailing in European economies. The progress seen by the euro zone at the end of last year started to ease, while governments are focusing meanwhile on shaving their huge deficits.
The euro zone after expanding 0.4% in the third quarter last year expanded only by 0.1% in the fourth quarter. In addition, data concerning the first quarter of the current year is raising concerns that the 16-nation economy may return to recession again.
Today’s data showed improvement in Germany, as unemployment slipped to 8.0% in March from the revised 8.1 where unemployed dropped by 31,000%, posting the largest fall since August 2008. In the euro zone, jobless rate edged up to 10.0% in February from 9.9% in January. The rate rose to the highest level since August 1998 after remaining unchanged for three consecutive months, mirroring the slowdown in recovery witnessed recently in the euro region.
Other data released today showed that CPI flash estimate for March rose to 1.5% from 0.9% above estimates of 1.1%. Prices afterfalling in negative territories since June last year increased gradually due to the high spending and mild improvement which managed to lift prices in the past few months, while inflation moved between 0.9% and 1.0% since December. But the reading spiked this month to fastest level since December 2008 as a result of the incline in oil prices which reached a high of $83.45 a barrel this month. One of the policy makers at the BoE forecasted that the rise in commodity prices is more likely to push inflation in the coming period.
ECB in their monthly bulletin in March, however, expects low inflationary pressures over the medium term, close to the 2%, the lower bound set by the bank. Policy makers are expecting annual inflation to range between 0.8% and 1.6% this year and between 0.9% and 2.1% next year.
Despite the rise in oil prices that were slightly affected by the dollar’s advance, prices may anchor again due to the pressure stemming from the high unemployment rate that will weigh on consumer spending. Still, many companies are shedding employees to cut costs to return to profitability again.
Nevertheless, the concern now is on the swelling budget deficit in euro-zone economies. The high debt in European economies is threatening recovery that is still fragile.
Today, Moody’s said Italy to face challenging economic conditions this year as it is encountering both high debt and low growth. The Italian economy shrunk 5.1% last year and is expected to struggle this year to recover due to the high debt that reached 1.8 trillion euros which represents 5.3% of GDP and is predicted to incline to 117% of GDP in 2010.
By extension, Greece which may have an aid from the EU and IMF if it failed to cover its debt will suffer to rein in deficit to 8.7% from 12.7% by the end of the current year due to high interest on its debt sold this year. Recent data compiled by Bloomberg, Credit Agricole and Investment Bank shows that Greece will pay 13 billion euros as an interest on its debt this year more than the yields that prevailed before crisis.
After the news the euro advanced against the dollar to 1.3440 from the day’s opening at 1.3412. The 16-nation currency is unable to rebound despite the EU support for Greece as the abilities of EU economies to trim the debt to the 3% ceiling set by the EU is uncertain.
Published on Wed, Mar 31 2010, 10:02 GMT