Decline in joblessness positive for euro zone

Hopes of recovery improve

THE NUMBER of people out of a job in the euro zone has fallen for the first time in more than two years, the latest sign that the region may make a muted recovery from recession later this year.

Falling spending in June by shoppers in Germany, France and Spain, however, will dampen any early celebrations, but low annual inflation – stable at 1.6 percent in July – means that the European Central Bank (ECB) is able to act if the recovery falters.

In June, 24 000 fewer Europeans in the single-currency area were jobless compared with May, EU statistics agency Eurostat said yesterday, the first decrease since April 2011.

Predictions of a rebound have so far proved illusory as Europe tries to overcome more than three years of crisis.

Indeed, the fall in euro zone joblessness was not enough to bring down the overall unemployment reading for the bloc, which remained at a record 12.1 percent for the fourth consecutive month.

More than 19 million people were unemployed in June. Retail sales in Germany fell by the most this year in June, slipping 1.5 percent, while French spending fell back in the month from May.

In Spain, retail sales fell for the 36th month running in June and only 39 fewer people were out of a job in the month compared with May in a country where the unemployment rate is second only to Greece in the wider EU at 26.3 percent.

“It’s no secret that domestic demand remains very weak because spending is massively impaired by unemployment and austerity,” said Gilles Moec, an economist at Deutsche Bank.

Talk of a recovery has intensified, however, after euro zone business and economic sentiment indices rose to a 15-month high in July, helped by the ECB’s pledge to stand behind the euro zone, as well as a recovering US economy and a lessening of harsh austerity policies.

The latest euro zone purchasing managers’ index (PMI) survey has also swung into growth territory, and consumer confidence remains strong in Germany, having risen to its highest level in nearly six years heading into August, a GfK survey showed earlier this week.

These signs of improvement mean the ECB is likely to hold off from cutting interest rates when it meets today.

In a Reuters poll of 70 economists, conducted before the PMI survey came out last week, all but one expected the ECB to hold policy rates steady at today’s meeting.

“Recession is probably over” was the headline of a Commerzbank research note last week, and Europe is beginning to grab the attention of investors who are looking to the euro zone and Britain to take over a stock market boom in the US and Japan after double-digit gains there this year. – Reuters