Brussels - 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 in the eurozone rose by 173 000 people in
October to almost 19 million people unemployed, 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% of the working population, illustrating the
human impact of a public debt and banking crisis that has reverberated across
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% in November from 2.5% in
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%,
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%, 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% 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 December 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.
The bond-buying programme 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.
Many economists blame the spending cuts implemented by
almost all governments in the past three years to try to bring down their
deficits that ballooned over the past decade.
Portugal, for instance, shed more than one in 20 public
sector jobs in the first nine months of 2012.
But in a shift in tone, the International Monetary Fund and
the European Commission say now that they may have been too aggressive in
pushing for government cutbacks. The Commission is now advocating
"growth-friendly fiscal consolidation".
Draghi, speaking on French radio on Friday, tried to sound
cautiously upbeat and has avoided the word "recession" in his public
comments in recent weeks. "The recovery for most of the eurozone will
certainly begin in the second half of 2013," he told Europe 1 radio.
Yet even the European Commission's forecast of 0.1% growth
next year looks optimistic and many banks, from Citigroup to Standard Chartered,
expect the recession to continue and unemployment to keep rising.
There are also wide divergences in unemployment in the
eurozone, with the jobless rate at around 4% in Austria, 16% in Portugal and
above 25% in Spain and Greece.
"The number of unemployed, which better captures the
shorter-term dynamics, is showing little sign of abating," said JP Morgan
economist Greg Fuzesi. "Even with our expectation of a modest recovery
next year, the unemployment rate could reach 12% quite soon," he said.