Euro Area Unemployment Resumes Its Rise, Inflation Retreats To Raise Interest-Rate Cut Forecasts

European unemployment climbed to a record high of 12.1% last month from 12.0% in February to add to signs the economy is heading to a contraction in the first three months of this year.

Today's report showed that the number of people unemployed soared by 62,000 from the previous month to 19.2 million people.

The sharp austerity measures adopted by euro area nations have weighed on growth prospects and raised unemployment.

A report from Italy released today showed that unemployment in the euro area's third-biggest economy remained near a 20-year high of 11.5% in March from a revised of 11.7% as it suffers from the longest economic recession in two decades.

One of the highest rates remain in Spain which suffers from a record of 27% joblessness, the highest since at least 1976, on six years of slump, yet the government expects a drop over the next three years.

Even in Germany, the rate climbed for a second month in April to raise the number of job seekers by 4,000 to 2.94 million.

Data released yesterday showed that euro area confidence dropped in April more than economists forecast as economic confidence retreated to 88.6 in April, the lowest since December, from a revised of 90.1, compared with estimates of 89.3.

The euro area dropped 0.6% in the last three months of last year and is about to record another contraction.

In March, the ECB lowered slightly its growth forecasts for 2013 and 2014 due to the negative carry-over effect. The bank said it expects a drop of 0.1% and 0.9% this year from the previous range of 0.3 percent and -0.9 percent. As for 2014, the ECB cut estimates to a range between 0.0 percent and 2.0 percent from the prior 0.2 percent and 2.2 percent range.

Eyes will focus this week on the latest European Commission growth forecasts for the euro area, with expectations to see further cut in growth forecasts from February's estimates of a contraction of 0.3 percent in the 17-nation region this year and a rebound to 1.4 percent expansion in 2014.

"What you have is weak banks, weak governments, low growth…and there is always a danger that they build on each other and things go from bad to worse," Olivier Blanchard, the IMF`s economic counselor, said on April 16.

Amid the debate about cutting interest rate further after the recent deterioration in economic data, eyes will follow the ECB's rate decision for this month to see whether there will be another cut to the rate that has been at 0.75 percent since July.

While ECB Vice-President Vitor Constancio has said the bank still has room to cut the rate below the current level if needed, European Central Bank Executive Board member Joerg Asmussen said an interest rate cut by the ECB would not be effective to euro-area periphery nations.

Now, European policy makers open to any solution to the current difficult situation where some are in favor of cutting interest rate further to bolster the economy, especially as inflation, measured by annual CPI, continued its retreat to 1.2% April, the lowest since February 2010, from 1.7% in March, according to a report released on Tuesday.

The slower than predicted drop in inflation will support expectations of seeing an interest rate cut by 25 basis points to 0.50% by the ECB on Thursday.

As of 09:10 GMT, the euro traded lower versus U.S. dollar around 1.3075 after hitting a low of 1.3055 and a high of 1.3119.

IMOH, Clement I.
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