Euro worries persist despite brighter data

Chris Papadopoullos
Follow Chris
SLIGHT improvements in inflation and unemployment have not been enough to quell fears that the Eurozone’s recovery is still in a fragile state.

Prices in the currency union are still falling on an annual basis but the rate of decline slowed to 0.1 per cent in March from 0.3 per cent in February, according to figures released yesterday by Eurostat.

However, core inflation – which excludes volatile energy and food prices – dropped to 0.6 per cent from 0.7 per cent.

“The latest data on Eurozone inflation and unemployment did not lift the threat of a prolonged period of deflation in the currency union,” said economist Jonathan Loynes from Capital Economics.

Yesterday’s data also showed that unemployment dropped to 11.3 per cent in February from 11.4 per cent the month before. But Loynes notes that this is still very high by historical standards. Economists have said it is unlikely new stimulus measures will be scaled back early as some analysts have suggested and also that governments need to continue with efforts to reform their economies.

The European Central Bank (ECB) last month began a programme of quantitative easing (QE) – creating new money and using it to buy government debt. The ECB said it will go on until at least September 2016.

“Suggestions that the ECB might soon have to think about scaling back its recently-launched quantitative easing programme for fear of over-stimulating the economy are, in our view, misguided,” Loynes said.

Economist Danae Kyriakopoulou from the Centre for Economics and Business Research said: “Today’s inflation news was encouraging, but this is not the time to rest on any QE laurels. The recovery remains fragile and failure to prioritise and successfully implement structural reforms risks sending the Eurozone into a Japan-style prolonged stagnation.”