Unemployment in the 17 European Union members that use the euro dropped to 12.1 percent in October, from the 12.2 percent record of the previous month, according to official figures. While it was mildly encouraging that an estimated 61,000 fewer people were jobless, the unemployment figures also showed that the rate in the 28 countries in the European Union, including countries not in the euro zone like Britain, Poland or Romania, was unchanged at 10.9 percent.
At the same time, estimated inflation in the euro zone rose to 0.9 percent in November from a year earlier, up from 0.7 percent in October, according to Eurostat, the European Union’s statistics office. The inflation rate is still well below the European Central Bank’s target rate of around 2 percent, and short of the level required to convince many economists that the euro zone is safe from deflation, a persistent and broad decline of prices that is a typical feature of economic depression.
“The threat of deflation has not been removed by this single month,” said Zsolt Darvas, a senior fellow at Bruegel, a research organization in Brussels. “Over all, I continue to be somewhat skeptical about recovery in the euro zone. The major problems are still there.”
Neither the unemployment data nor the inflation numbers did much to settle the debate among economists over whether the euro zone is slowly mending or stagnant and still under the threat of a renewed downturn.
As Mr. Darvas pointed out, the euro zone banking system is not functioning properly, credit remains tight, business investment is weak and government austerity still prevails.
Much of the dip in unemployment came from France, as companies there hired more young people on temporary contracts. Joblessness also fell in Portugal and Ireland, but remained high in Spain, where the rate rose to 26.7 percent from 26.6 percent.
The lowest rates were in Austria, with 4.8 percent, and Germany, with 5.2 percent. In Greece, which is several months behind in its reporting, the rate for August was 27.3 percent.
A downgrade of the Netherlands’ public debt by the rating agency Standard Poor’s left only three countries in the euro zone with S.P.’s highest AAA rating, Germany, Luxembourg and Finland.
“The downgrade reflects our opinion that the Netherlands’ growth prospects are now weaker than we had previously anticipated,” S.P. said as it reduced the country to AA+ from AAA. Still, the new rating is stronger than that of France and well above those of countries like Spain or Ireland.
Market rates on 10-year Netherlands government bonds fell slightly to just above 2 percent, a sign that investors were hardly alarmed by the rating agency’s action.
Still, the downgrade is “a reminder, if one were needed, of the extent to which the creditworthiness and economic performance of the core of Europe’s single currency area has been undermined over the past two years,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in a note to clients.
S.P. raised its rating on Cyprus to B-, from CCC+, and said the outlook for Spain’s rating was stable instead of negative, as before. There has been speculation that the European Central Bank could take further action to stimulate lending on Thursday when it holds its monthly meeting on monetary policy. The central bank could perhaps emulate the Bank of England by offering cheap loans to banks on condition that they lend the money on to businesses and individuals.
But most analysts do not expect a further decrease in interest rates so soon after the central bank cut its benchmark interest rate to 0.25 percent earlier this month, a record low.
Low inflation was the result of falling energy prices, Eurostat said, while the cost of food rose an estimated 1.6 percent and services 1.5 percent. Prices of industrial goods rose just 0.3 percent.
Some economists, noting a pickup in prices for services, saw the rise in inflation as a sign that deflation fears were overblown.
“The data confirm our assessment that the fall of the inflation rate in October was an outlier and the euro zone is not heading for deflation,” Christoph Weil, an economist at Commerzbank, said in a note.
But others warned that deflation, once it starts, could plunge Europe back into crisis and revive doubts about the survival of the euro zone. Deflation can lead consumers to delay purchases in anticipation of ever lower prices, undercutting corporate profits and causing companies to stop investing in new plants and equipment.
Analysts at the advisory firm Oxford Economics calculate that if the euro zone suffered deflation, unemployment could rise to 16.5 percent by 2018. At the same time, Greece and other hard-hit countries in Europe would have even more trouble meeting their obligations, because economic output would shrink and tax receipts would dwindle.
“While there has been a lot of talk about deflation in the euro zone, we think that the implications of such a scenario have not been fully grasped,” Oxford Economics said in a report issued Friday. “Without decisive policy action, a euro zone breakup would be hard to avoid in this scenario.”
This article has been revised to reflect the following correction:
Correction: November 29, 2013
An earlier version of this article misstated one of the countries that still retains a triple-A rating from S.P. It is Luxembourg, not Austria. The earlier version also reversed the percentage rise in the cost of food and services. Food costs rose an estimated 1.6 percent and services 1.5 percent, not the other way around.
Article source: http://www.nytimes.com/2013/11/30/business/international/euro-zone-inflation-rises-jobless-rate-dips.html?partner=rss&emc=rss
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