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Eurozone unemployment rate defies global turmoil in January - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 1, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Bert Colijn, Research Analyst at ING, suggests that while market turmoil reached concerning levels and signs of a global economic slowdown were ample, the Eurozone unemployment rate decreased again from 10.4 to 10.3 percent in January.

    Key Quotes

    “This was the fifth decrease in six months, bringing it back to levels last seen in August 2011. The pace of declines in unemployment has clearly accelerated over the past half year, boosting domestic demand in an otherwise troubled economy. Spain saw the strongest contribution, as its unemployment rate decreased from 20.7 to 20.5%, while also Germany and Italy saw declines in unemployment. The rate edged up again in France, bringing it to 10.2%.

    As the external environment is full of uncertainties and slowing growth, domestic demand is the key driver of economic growth in the Eurozone. To a large extent, this comes from people returning to work as wage growth is meager. The fact that the unemployment rate declined again in January is good news for continued growth in domestic demand despite scared consumers and businesses. Unemployment often lags economic output though, but for now it continues to provide some tailwind for growth in the months ahead.

    Even though unemployment has been coming down quite rapidly, it is unlikely that this will result in stronger wage growth in the near term. There is still simply too much slack in the market for this to happen, as the natural rate of unemployment is estimated to be at around 9.5%.

    When this rate is reached, it is likely that pressures on wages will return, but for now the impact on price pressures remains limited. This means that inflation is not going to be boosted by the current encouraging streak of declining unemployment in the coming months, although it is likely to start having an impact in 2017. While this will encourage the ECB somewhat, it is unlikely that this will be a strong argument for the hawks on the governing council against more monetary easing.”
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