Euro-Area Unemployment Falls to Lowest Level in Eight Years

(Bloomberg) -- Euro-area unemployment fell to the lowest in almost eight years and a measure of manufacturing accelerated as factories in the region's biggest economies benefited from improving global growth.

The average jobless rate declined to 9.5 percent in February from 9.6 percent in January. It's been decreasing steadily from a peak of more than 12 percent in 2013 and is now at the lowest since May 2009. Separately, IHS Markit said its Purchasing Managers' Indexes for Germany, France and Italy all rose in March, helping to pushing its euro-region gauge to the highest since 2011. New export business increased in all three nations.

The European Central Bank has deployed unprecedented stimulus to rekindle growth and fuel inflation, and President Mario Draghi said last month that the decline in joblessness shows the success of the central bank's 2.28 trillion-euro ($2.4 trillion) bond-buying program. He's also cited the improvement in the PMI readings as evidence of the recovery's progression.

“Those who had doubts about the equity of our asset purchase program are being answered because the most equitable measure of all is to create employment and to decrease unemployment,” he said. Draghi has repeatedly urged governments to implement reforms to reduce structural unemployment and boost growth potential.

The euro-area factory PMI rose to 56.2 in March from 55.4 in February, well above the 50 level that divides expansion from contraction. Markit warned of potential inflationary pressure linked to the euro and rising commodity prices. Output-price growth strengthened in March and was close to a six-year high, while suppliers struggled to meet growing demand.

‘Sweet Spell'

“Manufacturing is clearly enjoying a sweet spell as we move into spring, but it is also suffering growing pains in the form of supply delays and rising costs,” said Markit chief business economist Chris Williamson. “These delays send a warning signal about rising inflationary pressures, as busy suppliers are often able to hike prices.”

As of this week, the ECB is scaling down monthly purchases of public and private debt to 60 billion euros ($64 billion) from the previous pace of 80 billion euros. While acknowledging that the recovery is firming, Draghi maintains that inflation is not yet self-sustaining enough to justify an end of extraordinary monetary support.

ECB Chief Economist Peter Praet endorsed that view on Monday, saying that the new pace of QE purchases isn't the start of the end. The bank wants a “more lasting transmission of stimulus,” he said in an interview with Spanish newspaper Expansion.

Euro-area job growth “could accelerate in the months ahead, as hiring expectations among businesses have increased significantly,” said Bert Colijn, an economist at ING in Amsterdam. “Still, as unemployment is well above its natural rate, it will be a while before this starts to have any significant effect on core inflation.”

--With assistance from Mark Evans

To contact the reporter on this story: Fergal O'Brien in London at fobrien@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Zoe Schneeweiss, Fergal O'Brien