Eurozone Unemployment Dropped, Inflation Increased

The Eurozone is a group of 17 nations of the EU that uses the euro as their currency.

The unemployment rate in the Eurozone dropped to 12.1 percent in October coming from 12.2 percent the previous month. This is a milestone of sorts for the 17 nations in the Eurozone, which is suffering from years of economic stagnation. However, the inflation rate increased from 0.7 percent in October to 0.9 percent in November based on reports by Eurostat, the European Union’s (EU) data monitoring and analysis office.

The improvement in the job market prospect means that an estimated 61,000 individuals were able to land a job in the Eurozone, but a not so bright prospect still exists in the non-euro countries of the 28 nation-member EU like Poland, Romania and Britain whose unemployment rate is still fixed at 10.9 percent.

However, a separate Eurozone report with regard to the slight increase of inflation made many observers fear that the group of 17 nations might be in for a disastrous downward price movement. Based on the European Central Bank’s (ECB) 2 percent target, the figure is still well below the mark but is not enough to convince several economists that deflation will not happen. Deflation occurs during economic depression where there is an expansive decline in the prices of goods and services.

According to a senior fellow working at Bruegel, a research organization based in Brussels, Zsolt Darvas, the threat of deflation is still there even if an improvement was observed in the previous month. He added that he is still unconvinced on news of a Eurozone recovery because the basic problems are still there. Darvas cited as examples the banking system in the zone is still not functioning properly, government austerity measures are still the norm, credit is still tight and business investment is still not taking hold of the economy.

The decrease in unemployment in the Eurozone can partly be attributed to the efforts from France as most companies there hired workers, especially the younger set, on a temporary basis. The same is true for Ireland and Portugal where unemployment rates also decreased. In Spain however, the unemployment rate increased from 26.6 percent to 26.7 percent.

Another not-so-surprising event in the Eurozone was the credit downgrade given by Standard and Poor’s (S&P) to the Netherlands from a high of AAA down to AA+. S&P in justifying the drop in rating, mentioned that the Dutch economy is still generally weak given the government’s partiality for sticking to austerity measures and budget cuts. These measures are made worse by falling housing markets and declining consumer confidence. The Dutch economy might even shrink by 1.2 percent by the end of 2013, S&P added.

On the other hand, Cyprus got a B rating coming from a CCC+ rating from S&P which reflected the economic improvement in the country propped mainly by a bailout plan in the amount of 10 billion euro as extended by the EU and from the International Monetary Fund (IMF). Cyprus is slowly recovering from a near economic collapse three years ago.

Tim Congdon of the International Monetary Research said that a “dark cloud” is hanging over the Eurozone in 2014 because the public debt ratios are at greater risk of exploding.  Also, the money growth data fell to 1.4 percent which is lower than the ECB’s 4.5 percent target in order for the Eurozone’s economy to stay afloat. With these mixed signals coming from all fronts, analysts are hard put to place the real score on the economic status of the Eurozone and the EU in general even if some data like the October unemployment rate is down to 12.1%.

By Roberto I. Belda

The Telegraph

The New York Times