Eurostat data released as Spain's economy shrinks for seventh consecutive quarter and Slovenia suffers ratings downgrade
Governments across the eurozone have again been left counting the human cost of the financial crisis after news that unemployment in the currency bloc reached a record high, driven by soaring youth joblessness.
Eurozone unemployment rose to 12.1% for March, an all-time high, according to Eurostat, the statistics office of the European Union. In the wider EU area of 27 countries, unemployment stood at 10.9%, as the rate increased in all but eight countries compared with a year earlier.
Economists said the figures, which coincided with the seventh consecutive quarter of contraction in Spain and a ratings downgrade for Slovenia, challenged the ECB's view that the economy will start to recover this year.
"The eurozone continues to face major growth headwinds and still has its work cut out to exit recession," said Howard Archer, economist at IHS Global Insight.
With official data showing eurozone consumer price inflation at just 1.2% in April – markedly below the ECB's target – policymakers meeting in Bratislava this week had 'scope and reason' to take interest rates lower, Archer added.
A narrow majority of economists polled by Reuters before the unemployment and inflation data, expected the ECB to cut interest rates 25 basis points to a record low of 0.5%. The minority expecting no change on Thursday argue a cut would achieve little and that policymakers may be concerned about inflation picking up again in some member countries.
Commenting on the inflation data, Herve Amourda at Societe Generale said: "Looking at the headline rates, the market could see more support for a rate cut, but we should be cautious as drivers of the slowdown will prove temporary in core countries.
"This emphasizes again the heterogeneity of the euro area which is one of the main challenges of the ECB. All in all, we retain our call for no action at Thursday's ECB meeting."
Many economists argue the ECB will have to provide more than a mere rate cut to shore up confidence.
"It will be a big disappointment if the ECB does not cut interest rates this week and announce more unconventional policies to boost bank lending," said Jennifer McKeown at Capital Economics, citing the new peak for eurozone unemployment.
The under-25s continued to be worst hit by the jobs crisis, with youth unemployment in the eurozone at 24%. The data underlined the diverging economic conditions within the bloc, with the lowest rates of young jobless in Germany and Austria – both at 7.6% – and the highest in Greece at 59.1% in January, the most recently available number.
In Italy, new prime minister Enrico Letta, embarks on the task of hauling his country out of recession with unemployment at 11.5%. Again, youth joblessness is significantly higher at 38.4%.
Letta's first mission after winning a final confidence vote on Tuesday was to head to Berlin and plead for some fiscal leeway at a meeting with German chancellor Angela Merkel, one the eurozone's strongest advocates for austerity.
Letta, who declared in his inaugural address that "Fiscal rigour alone will kill us", was told to be under no illusions. Before he had even touched down, German politicians were loudly warning him against asking Merkel to support anything other than continued belt-tightening.
"It is certainly not the moment for debt-financed growth programmes," conservative Norbert Barthle told Reuters.
Smaller eurozone member, Slovenia, suffered a downgrade to its credit rating and warnings it could become the latest in a string of countries to need a rescue package. Citing the country's ailing banking sector and deteriorating public finances, Moody's cut Slovenia to Ba1 from Baa2.
"Slovenia's vulnerability to external shocks, like those brought about by the crisis in Cyprus, could make it difficult for the sovereign to fund itself at sustainable rates, which increases the likelihood that authorities would need to request an external assistance program," the ratings agency said in a statement.
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