News Column

Prices, Unemployment Rise in Eurozone Ahead of ECB Talks

May 31, 2013

dpa correspondents

Eurozone unemployment hit a new high in April while annual inflation was back on the rise in May, data released Friday showed, complicating the picture for the European Central Bank's (ECB's) governing council ahead of its monthly meeting.

The inflation rate rebounded to 1.4 per cent after slumping to a more than three-year low of 1.2 per cent in April, the European Union's statistics agency, Eurostat, said.

The figure remained well below the central bank's annual inflation target of below, but close to, 2 per cent.

Analysts predicted that while consumer prices in the 17-member eurozone might rise again in the short term, they would likely drop later, leading to an average inflation rate for this year of about 1.4 per cent.

"With the risk that the ECB will undershoot its medium-term target for inflation, ... there remains a compelling case for further monetary easing," ING analyst Martin van Vliet said.

Nevertheless, van Vliet and most of his colleagues said they expected the bank's governing council to take no dramatic action when it meets next week, given some positive trends in other economic data.

The central bank cut interest rates to a historic low of 0.5 per cent at its last meeting in early May.

"The likelihood of a deposit rate cut at the upcoming ECB meeting is close to nil," analysts at Danske Bank said while also expressing doubt that bank President Mario Draghi would expand on plans to shore up bank lending for small and medium-sized enterprises (SMEs).

"It is clear that the ECB would again like to take a back seat and let eurozone governments do some work," ING bank said in a client note.

EU President Herman Van Rompuy, who was visiting Rome Friday, said banks' unwillingness to issue small business loans was "probably one of the biggest obstacles to the recovery" in Europe.

"The current situation is not satisfactory, not satisfactory at all," Van Rompuy said, adding, "In several countries, including Italy, access to credit for SMEs is more difficult and more costly than for SMEs with similar characteristics in other member states."

He said the European Commission, the European Investment Bank and the central bank were working on how to improve credit access and would submit proposals before the next EU summit.

The June 27-28 event in Brussels was also expected to focus on unemployment, particularly among the young.

French President Francois Hollande and German Chancellor Angela Merkel plan to present their EU counterparts with joint measures to boost employment.

The jobless ranks in the eurozone have swelled relentlessly since mid-2011. In April, they reached 12.2 per cent, the highest figure since the launch of the euro, Eurostat said Friday.

A further 95,000 people became unemployed in that month, bringing the total to almost 19.4 million. They included 3.6 million people below 25, pushing youth unemployment to 24.4 per cent.

Greece and Spain continued to be the worst affected - with youth unemployment exceeding 62 per cent in Greece - while Austria and Germany were among those enjoying the lowest rates.

Unemployment in Italy, the eurozone's third-largest economy, hit a 36-year high, with youth joblessness reaching 40.5 per cent, the national statistics institute, Istat, said.

Italian Prime Minister Enrico Letta is among the EU politicians who have made fighting unemployment a priority.

But many analysts were pessimistic that they would manage to reverse the trend on jobs quickly.

"Even if the eurozone economy exits from recession later this year, the labour market is likely to remain in recession until next year," van Vliet said.

Authors: Alexandra Mayer-Hohdahl, Helen Maguire, Andrew McCathie, Alvise Armellini

311526 GMT Mai 13

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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