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August 1, 2009

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Home » Business » Economy

Euro zone still feels the bite of recession

FALLING prices and rising unemployment in the 16 nations that use the euro show an economy still mired in recession despite recent green shoots, according to European Union statistics published yesterday.

Euro zone consumer prices fell for a second month in July as the June jobless rate rose to a 10-year high to 9.4 percent, the EU statistics agency Eurostat said.

Unemployment lines grew by 158,000 from May to June in the 16 nations that use the euro, it said, as companies made cutbacks to cope with falling demand for goods and services at home and abroad. Some 3.17 million more people are out of work compared to June last year.

Lower demand for energy and other goods has caused prices to plunge in the region. Eurostat sees disinflation for the 16 nations that use the euro for a second month in a row after the year-on-year rate shrank 0.1 percent in June and hit zero in May.

This dampens brighter news about the economy last week. Euro zone business and consumer confidence figures rose to an eight-month high in July as companies and shoppers were more optimistic about coming months.

Industrial managers also see the recession bottoming out with companies restocking supplies they ran down in recent months.

But EU economists warn that confidence levels are still running at record lows and that industrial output is shrinking from a year ago.

The European Central Bank argues that low or negative inflation can help boost the economy by cutting costs.

That depends on disinflation staying short-lived and not turning into full-scale deflation.

Deflation is a downward price spiral that can harm the economy with a vicious circle of declining demand, worsening debt and job losses, as happened during the Great Depression of the 1930s.

Oil drives inflation

Inflation is largely driven by oil prices which have dropped by more than half from an all-time high of US$147 a barrel in July 2008 to US$67 in early trading yesterday.

Eurostat will confirm and explain what is behind falling inflation on August 14.

Eurostat also downgraded its unemployment figure for May from 9.5 percent to 9.3 percent. It said the jobless rate across the entire 27-nation European Union was 8.9 percent in June and 8.8 percent in May.

It said the June figures were the highest for the euro area since June 1999 and for the EU since June 2005.


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