Monday, March 2, 2015

Eurozone: good news for inflation and unemployment but … – The Obs

Eurozone: good news for inflation and unemployment but … – The Obs

Brussels (AFP) – The economy of the euro area recorded good news Monday, with a further decline in unemployment and an improving trend in inflation, but economists remain cautious, even if they believe less and less to the threat of deflation.

The unemployment rate in January reached its lowest level since April 2012 in the monetary union, to 11.2% against 11.3% the previous month. The euro area had 140,000 unemployed less than in December and 896,000 fewer than in January 2014, according to statistics from Eurostat.

At the same time, the European Statistical Office published its first estimate for inflation in February. True, prices continued to decline in the euro area for the third consecutive month, but “the risk of deflation is fading,” said Peter Vanden Houte, ING.

Deflation is a phenomenon feared by economists because it is characterized by a prolonged decline in prices that may weigh on growth in turn driving down wages and consumption.

But the price decline recorded in February is less strong than in January, with a decline of 0.3% year on year against 0.6%. It is also less than anticipated by economists, who had forecast a decline of 0.4%.

Another positive, “there are not many signs that consumers delay purchases, “said Howard Archer of IHS Global Insight. For him, “this should alleviate fears of a widespread deflation that would settle in the euro area with negative effects on growth”

-. A replay “in spurts” –

And it could also bring, he said, “some relief” to the European Central Bank, which committed 22 January to inject over 1,000 billion euros in the union of the economy money to raise prices.

Monday published figures thus provide “a double dose of good news,” Judge this economist, who notes that “the euro area labor market seems to benefit from the acceleration of growth in the fourth quarter 2014 “. Employers seem particularly be less reluctant to hire because of the breath of fresh air that bring their low energy prices and the favorable exchange rate of the euro.

But “the recovery in the euro area proceeds fitfully for several years and it would be unwise to declare victory too soon, “Peter Vanden Houte tempers. Concerning unemployment, despite the “slight decline” observed from December, its level remains “higher than 4 points at the beginning of the crisis in 2008,” he says.

level of unemployment is too high to put pressure on employers and lead to higher wages, which in turn would boost growth and inflation.

It is partly for this reason that Jennifer McKeown of Capital Economics, is less optimistic than his colleagues, and believes that “the risk of a sustained episode of deflation remains.”

It notes in support of his argument that improved observed in February was entirely due to changes in energy prices and the “food, drinks and tobacco”, which are the most volatile components of inflation.

Inflation underlying, more relevant to economists, remained stable at a historically low level of 0.6%, she says, it was “likely” that continues to decline.

economist does not see more of optimism in the fact that the manufacturing sector in the euro area has experienced moderate growth in February, according to another indicator published Monday PMI.

L The index stood at 51 gold business increased when it exceeds 50. This level “shows that the activity is barely growing in this area,” according to Jennifer McKeown.

Given all these elements, it considers that the massive liquidity injection program of the ECB, due to start this month “is unlikely to bring inflation to a level close to its 2% target.”

Without progress on the figures, Peter Vanden Houte expects for its part that prices are rising again “in the second half of this year.” As for Howard Archer, he thinks he’ll have to wait for the fourth quarter.

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