Slightly better eurozone unemployment is just window dressing

7th January 2016 By: Ranko Berich

Eurozone unemployment figures – 7/1/16

The slight improvement in eurozone unemployment provides little cause for genuine economic optimism. If recent events in the US and UK tell us anything, it’s just how weak the relationship between falling unemployment and upwards price pressure is in the today’s economy.

With emerging market growth slowing drastically, stubbornly low interest rates and commodity prices in freefall, 2016 is set to be a challenging year globally. The eurozone’s rather sluggish recovery, compounded by the unfavourable distribution of unemployment in southern European economies, is unlikely to be enough to raise inflation anytime soon.

Given the continuing downwards trend in producer and commodity prices, the immediate future for eurozone inflation is looking very grim indeed. The ECB has been adamant that it is unaffected by financial markets and that its current level of accommodation is sufficient, but at this point another large deflationary shock will leave them little choice but to opt for more easing.