Unemployment Worsens in Euro Zone

  • Updated March 1, 2013, 7:04 a.m. ET


Unemployment in the euro zone climbed to its highest rate on record in January, official data showed Friday, underscoring the heavy toll the currency bloc’s fiscal crisis and recession are exacting on a populace weary of austerity.

Other data showed annual inflation in February fell to its lowest level in 2½ years, however, which could encourage consumer spending due to a reduced squeeze on household incomes. Lower inflation could also ease doubts among policy makers at the European Central Bank about giving more support to the struggling economy in coming months.

Eurostat, the European Union’s statistics agency, said 11.9% of the euro zone’s workforce was unemployed in January, the highest percentage for the 17 countries that make up the currency bloc since records began in 1995. The figure is higher than the jobless rate of 11.8% in December.

Underpinning the rise was a surprise jump in Italy’s unemployment rate to 11.7% in January from 11.3% in December. The latest month’s figure was the highest since 1992, the country’s statistics agency said. This underscores growing unhappiness with the austerity measures of the outgoing government headed by Prime Minister Mario Monti. General elections earlier this week resulted in a hung parliament, with Mr. Monti’s party securing only a small minority of the vote.

Italy and the wider euro zone are in recession, according to the most recent official data covering the final three months of 2012. A recession is commonly defined in Europe as being at least two straight quarters of declining gross domestic product. Euro-zone output in the fourth quarter fell 0.6% from the prior three months.

Sweden on Friday published relatively strong figures on economic output in the fourth quarter, the latest evidence that European countries that don’t use the euro are faring better in the current downturn than many of the nations inside the currency bloc.

Swedish gross domestic product was unchanged between October and December compared with the three months before, outperforming expectations from private-sector economists and the country’s central bank. The U.K., another country outside the euro, also saw its output shrink at a lesser rate than the euro zone in the fourth quarter.

Other data from Eurostat on Friday showed the annual inflation rate in the euro zone was 1.8% in February, down from 2% in January and the lowest rate since August 2010. Inflation is now underneath the ECB’s target level. The bank aims to keep annual price growth close to, but just below 2%.

Relatively tame inflation, in addition to easing the pressures on household incomes and acting as a spur to consumer spending, could encourage officials at the central bank to inject stimulus into the euro-zone economy later this year if output continues to shrink. The ECB’s Governing Council will meet next week to decide whether to alter its monetary policy. The bank’s main interest rate has been at 0.75%, its lowest ever level, since July last year.

A survey of manufacturing activity in the euro zone in February suggested the currency bloc’s recession will continue in the first quarter at least.

Data company Markit said Friday its monthly poll of manufacturing industry executives held steady at a reading of 47.9 in February, underneath the 50 threshold that would signal growth. Activity has been shrinking for 19 months, the company said.

“While the manufacturing sector is likely to have again acted as a drag on the overall economy in the first quarter, causing gross domestic product to fall for a fourth consecutive quarter, there are signs that the downturn has become less severe,” said Chris Williamson, chief economist at Markit. He noted that the rate of decline in February was the joint-lowest in a year.

A less severe fall in new orders suggests overall activity in the currency bloc’s manufacturing sector should stabilize further in March, Mr. Williamson said.

Activity in February rose in Germany and Ireland but fell in the other six countries for which Markit gave detailed figures. The steepest fall was in Greece, which showed a reading of 43. That was nonetheless the crisis-hit country’s best performance in nine months.

Factory activity in Germany grew, as shown by a reading of 50.3, its highest in over a year. That underscores the growing divide between Europe’s biggest economy and many of its struggling neighbors. Manufacturing activity in France shrank markedly.

The decline in manufacturing in the euro-zone overall came as factory activity in Asian countries continued to grow. China’s official purchasing managers’ index fell to 50.1 in February from January’s 50.4, still indicating marginal expansion.

“China is for sure steadily recovering, and has bottomed definitively,” HSBC HSBA.LN -1.31% Greater China economist Donna Kwok said. But she noted that the recovery will be slower than in 2010, when a massive government stimulus package drove growth.

Among Asia’s other major economies, manufacturing in Taiwan also grew at a slower pace in January than in December, while activity in India accelerated and Indonesia’s manufacturing sector moved back into expansion.

—Martin Vaughan, Christopher Emsden and Anna Molin contributed to this article.




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