World Economy

Eurozone Inflation, Employment Still a Concern

Eurozone Inflation, Employment Still a ConcernEurozone Inflation, Employment Still a Concern

A slew of economic data released this week helped markets to gauge the health of eurozone economy and judge whether or not ECB’s monetary policies intended to spur growth in the bloc is helping to set straight the process of recovery.

Data released this week revealed that the eurozone economy has shown significant resilience. The impact of the low interest rates, weak euro and cheap oil seems to have offset the negative impact of the headwinds, FXStreet reported.

Given that low inflation has long been the primary concern for the ECB, a discussion on eurozone’s economic status must begin with quoting the bloc’s current inflation figures. Data released on 5th January showed eurozone’s annual inflation stood at 0.2% in December, lower than broad market expectations.

The low inflation last month can be attributed to lower prices of food, and other items, including tobacco, which increased only 1.2% YoY in December, down from 1.5% increase recorded previously.

Energy prices continued to drop, falling -5.9% YoY. Core measure on the other hand was noted to have slowed for the second straight month, slipping to 0.86% YoY from 0.93% previously. Core inflation posted the weakest figure in 6 months. Services price inflation also weakened to 1.1% YoY from 1.2% previously. Further, with oil around $30 per barrel, inflation is set to stay low in the coming months.

ECB’s smaller than expected stimulus package announced in December had disappointed markets.

 PMI Figures

Closely watched PMI survey revealed this week that growth in the bloc climbed for the first time in four months in December. The Eurozone manufacturing PMI increased to 53.2 in December, up 0.4 points from the 52.8 reading in November 2015.

With this, the manufacturing index in the bloc managed to stay above the neutral level of 50 for 30 consecutive months. Italy was noted to be the fastest-growing nation in the bloc along with France, Germany and Ireland.

Netherlands, Spain, and Austria however witnessed slower pace of rise. The PMI for service industry came in at 54.2, unchanged from November. The final composite PMI thus touched a four-month high of 54.3 from November’s 54.2, higher than an earlier estimate of 54.0.

The composite output price index for December was also noted to be stable at 49.5. Also, firms added new jobs at the fastest rate since May 2011 with the belief that business will improve in 2016. The employment sub-index came in at 52.8 in December up from 52.2 recorded in the previous month.

The good sign is the unemployment rate in the bloc has been declining over the last year. However, the fact that it still stood at 10.7% in October, which is double than the current unemployment rate in the US, definitely raises worry with respect to the employment scenario in the bloc.

Meanwhile, the European Commission’s economic sentiment indicator for the Eurozone unexpectedly increased to 106.8 in December from 106.1 in November, much better than consensus.