Eurozone jobless rise raises hopes of rate cut

  • @Benchu_

Pressure on the European Central Bank to cut interest rates this week has intensified after official statistics yesterday showed that unemployment in the recession-stricken eurozone has reached a record 12.1 per cent, while the rate of inflation has declined to just 1.2 per cent.

The ECB will meet for its monthly meeting tomorrow with analysts suggesting that the economic data may persuade the central bank, headed by Mario Draghi, to cut its main borrowing rate to 0.5 per cent, down from 0.75 per cent, in order to help stimulate a recovery on the Continent.

"If the ECB does hold fire on interest rates it is very likely only delaying the inevitable," said Howard Archer of IHS Global Insight.

The ECB has been the most hawkish of the major central banks on inflation, easing policy by much less than the US Federal Reserve and the Bank of England. But the fall in the annual rate of inflation from 1.7 per cent in March to 1.2 per cent in April, its lowest level since February 2010, emphasises the lack of inflationary pressure in the bloc and will put the wind in the sails of those members of the governing council proposing a cut.

But Holger Schmieding of Berenberg bank warned that a rate cut might not actually do much good for struggling European borrowers. "A rate cut does little to ease the credit crunch at the euro periphery," he said. "More direct interventions into the peripheral credit markets would be needed for that."

The rise in the unemployment rate reflects the rising pain throughout the eurozone, which has been contracting since late 2011. Some 19.2 million people across the single currency area are now out of work. Joblessness in Spain and Greece has reached around 27 per cent of the working age population.

However, highlighting the economic divergence between the fortunes of the core and the periphery, in Germany the unemployment rate last month was just 5.4 per cent. In Austria joblessness was just 4.7 per cent.

The official Spanish statistics agency said yesterday that the state's economic slump dragged on between January and March, with the economy contracting by a further 0.5 per cent in the first quarter of 2013.