FOREX TRADING

Euro Zone’s Unemployment Rate Inline With Expectations

The European economy, after witnessing a catastrophic year in 2008 and bleak first quarter this year, started to mitigate with the release of second quarter’s GDP, which surprisingly showed a decline in contraction to 0.2% from 2.5% in the three months ending March.

Wise interventions by the ECB and European national banks; caused data to gradually begin improving, increasing hopes of the euro zone being on the right track, where recovery is expected in just a matter of time. The ECB lowered the borrowing cost to 1% and unveiled 60 billion euros plan to purchase covered bonds, in addition to lending banks at the current benchmark.

However, the sharpest global recession since WWII maintains having an adverse impact on the economy. Although sectors managed to show growth again, as indicated by PMI indicator, while economic confidence jumped to the highest level in 13 months in October; the decline in prices and the rising unemployment remain to be the most challenging. Trichet mentioned that are uncertainties linked to recovery, which is expected to be ‘bumpy’.

Annual CPI for September, released today, retreated to -0.3% from the previous -0.2% in August. Today, CPI estimate for year ending in October increased slightly to -0.1% inline with expectations.

Energy prices, after reaching their bottom in February below $34 a barrel, surged to a one-year high in October above $81 a barrel, which participated in raising inflation estimates for October’s reading.

On the other hand, the reading is still in negative territories, but the ECB recently mentioned that inflation is expected to return to positive territories and stabilize soon. The ECB in September expected inflation to reach 0.4% in 2009 and 1.2% in 2010.

The cause of prices decelerating, despite of improvement, is due to the fact that economic activities remain subdued and spending is pared with mounting jobs loss. The ECB mentioned that the economy will recover ‘at a gradual pace.’ Yet, consumer spending is showing a decline as numerous companies are shedding jobs and thereby reducing household income.

Jobless rates for September inched higher to reach 9.7% from 9.6%, yet matched economic forecasts.

Trichet previously mentioned that the weak labor market conditions may improve in the upcoming period. The IMF in its estimates mentioned that unemployment in the euro region will climb to 11.7% next year. The high rates are emerging from Spain and Ireland, where the rate will incline to 20.2% and 15.5% respectively.

Recovery is expected to take place sooner or later; however, markets are looking for strong data that supports those released in the prior period. GDP data for the third quarter will probably restore confidence, and might pave the way for removing stimulus.

Nonetheless, withdrawing the incentive packages soon is unlikely to happen, since the economy still needs intervention to fully recover. Meanwhile, the European central bank in September raised its economic estimates to anticipate a shrink of 4.1% this year and an expansion of 0.2% in the coming year

Ecpulse

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