Euro-Region Inflation, Unemployment Hold as Recovery Falters
Euro-area inflation remained unchanged in August and unemployment held steady for a second month in July as economic growth in the region slowed amid a persistent sovereign debt crisis.
The inflation rate remained at 2.5 percent after falling to that level in July, the European Union’s statistics office in Luxembourg said today in an initial estimate. The seasonally adjusted jobless rate remained at 10 percent, a separate report showed. Eurostat revised March, May and June unemployment up to 10 percent from 9.9 percent.
Europe’s economy cooled more than economists forecast in the second quarter and economic confidence plunged in August, suggesting companies may find it more difficult to pass on higher costs and boost hiring. Economic and Monetary Affairs Commissioner Olli Rehn indicated this week that the EU may reduce its 2011 growth forecast from 1.6 percent on concerns that financial turbulence could spill into the broader economy.
The European Central Bank “is expected to step back at its September policy meeting from indicating that a further interest rate rise is likely this year,” acknowledging that “the downside risks to growth have increased while the upside risks to inflation have diminished,” said Howard Archer, chief European economist at IHS Global Insight in London.
‘Moderate’ Inflation Pressure
ECB President Jean-Claude Trichet said on Aug. 29 that the bank is reviewing its assessment of inflation threats ahead of the Sept. 8 rate decision after policy makers raised borrowing costs twice this year to 1.5 percent to fight price pressures. Inflation in the 17-nation euro region has exceeded the Frankfurt-based ECB’s limit since December.
The euro was little changed after the data were released, trading at $1.4439 at 12:46 p.m. in Brussels.
The ECB will release its latest economic projections next week. In June, the central bank forecast euro-region inflation to average 2.6 percent this year and 1.7 percent in 2012. Growth may slow to 1.7 percent in 2012 from 1.9 percent this year.
“Underlying inflation pressure remains moderate considering the economy is only growing moderately,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “While inflation will remain above the ECB’s limit this year, it should drop below 2 percent next year.”
With the recovery faltering and consumers growing more pessimistic, the ECB has room to keep borrowing costs at 1.5 percent. ECB council member Ewald Nowotny said on Aug. 26 that he saw no “specific issues that could contribute to an increase” in inflation expectations. While the economy is cooling, “it won’t mean recession,” he said.
Crude-oil prices have retreated 14.5 percent in the past three months, bolstering consumers’ purchasing power just as growth weakens. The euro-region economy expanded 0.2 percent in the second quarter with Germany’s recovery coming to a near halt. Adding to signs of a slowdown, European manufacturing contracted in August and German investor confidence dropped more than economists forecast to the lowest in 2 1/2 years.
Germany’s jobless rate held steady at 6.1 percent last month, today’s report showed. Unemployment in Europe’s largest economy declined for a 26th month in August, separate data from the country’s Federal Labor Agency showed today.
While surging demand for cars is boosting hiring at German companies including MAN SE, Continental AG and Daimler AG’s Mercedes-Benz division, Telefonica SA, Europe’s second-largest phone company, plans to slash the operator’s Spanish workforce by about 20 percent in the next three years.
“We’re getting to a point where the German labor market is reaching its limit and on top of that we have increasing pressure from the periphery,” said Christian Melzer, an economist at Dekabank in Frankfurt. “I don’t expect the unemployment situation to improve any time soon, especially because there are clear signals for an economic slowdown in the region.”
ThyssenKrupp AG (TKA), Germany’s largest steelmaker, said on Aug. 12 that global demand had slowed and European consumption declined “sharply.” The company on that day posted fiscal third-quarter earnings that missed analysts’ estimates.
Hiring expectations in the euro-region manufacturing sector slumped to a 10-month low in August, a European Commission survey showed yesterday. Consumer concern about unemployment jumped to the highest in more than a year.
Unemployment in Ireland increased for a second month in July to 14.5 percent and 21.2 percent in Spain, the highest in the 17-nation euro region. Joblessness dropped to 12.3 percent in Portugal and 3.7 percent in Austria, the lowest in the currency zone. About 15.8 million people were unemployed in the euro area in July, up 61,000 from the previous month.
Companies in the U.S. added 100,000 jobs this month compared with 114,000 jobs in July, a Bloomberg survey shows before data from ADP Employer Services is released today.
U.S. unemployment dropped 0.1 percentage point to 9.1 percent in July, according to today’s Eurostat data.
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