Joblessness is down but eurozone still suffers, say analysts

Unemployment in the eurozone fell for the first time in two years in June, but City analysts warned that the single currency's economic problems were far from resolved.

Eurostat reported that joblessness across the 17-nation bloc fell by 24,000 to 19.27 million over the month – the first drop registered since March 2011. The unemployment rate in Spain fell from 26.4 per cent to 26.3 per cent. In Italy it dipped from 12.2 per cent to 12.1 per cent. The jobless rate in Portugal fell from 17.6 per cent to 17.4 per cent.

However, this improvement was offset by an increase in the unemployment rate in France from 10.9 to 11 per cent and in the Netherlands from 6.6 per cent to 6.8 per cent. Overall, the eurozone unemployment rate was flat on the month at 12.1 per cent. Youth unemployment was also up, rising from 23.8 per cent to 23.9 per cent. In Spain the jobless rate among under-25s rose from 55.8 per cent to 56.1 per cent. In Italy it rose from 38.3 per cent to 39.1 per cent.

"Both European leaders and the European Central Bank know that unemployment rates at these levels still pose a threat to the stability of the eurozone," said Peter Vanden Houte of ING Bank. And Jonathan Loynes of Capital Economics said that regional differences were a reason to be nervous about the outlook for the single currency. "The huge divergences [in the unemployment rate] between countries – from 4.6 per cent in Austria to 26.3 per cent in Spain – are a powerful reminder of the still enormous economic imbalances inside the currency union" he said.

Eurostat also reported yesterday the annual inflation rate across the single currency was 1.6 per cent in July. Core inflation fell from 1.2 per cent to 1.1 per cent, but food, alcohol and tobacco prices were up 3.5 per cent on the same month last year.

The ECB is expected to keep rates on hold at 0.5 per cent today, but some analysts said the central bank president, Mario Draghi, might choose to strengthen his guidance to financial markets that rates will remain low for an extended period. "With market pricing still pointing to more tightening than was expected in early May, Draghi may seek to deepen that guidance," said Huw Pill of Goldman Sachs.