Is the Eurozone out of the woods when it comes to unemployment?

The Eurozone’s unemployment rate fell to 12.0 per cent in December - the same as it was in November (which was revised down from 12.1 per cent). The fall was the largest since April 2007 - down by 129,000.

The figures, says Christian Schulz of Berenberg, show the labour market is now past the worse.

Improvement is likely in January too, he adds, meaning the rate could fall further below the 12.1 per cent peak of last summer.

Spain merits the most attention, as it looks like the country has reached something of a turning point. The Eurostat rate has dropped to 25.8 per cent from 26.5 per cent in the summer. Joining Ireland and Portugal, it looks like it’s now on a downward trend. The same remains to be seen for Italy.

But things in Greece and Cyprus have continued to get worse, with the rate in the former hitting 27.8 per cent.

Overall, however, it is good news for the European Central Bank (ECB), says Schulz, as falling unemployment meets stabilising core inflation and indicators of a recovery that’s gathering momentum. Consumer price inflation was back down to 0.7 per cent year-on-year in January, data from Eurostat showed this morning.

But, as Capital Economics points out, all this data piles the pressure on the ECB when it comes to acting to ward off deflation:

With Draghi recently sounding lukewarm on LTROs and quantitative easing, another interest rate cut is perhaps the most likely move, if not next week than in March.

But Berenberg thinks that the bank is unlikely to shift from its dovish bias towards an even more accommodative stance:

Unemployment has a long way to fall before setting off upward pressure on prices and the recovery remains uneven and halting as the credit data for December highlighted this week.