Oil pushes up euro zone prices, unemployment rises

Thu Mar 1, 2012 7:44am EST
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By Robin Emmott

BRUSSELS (Reuters) - Unemployment in the euro zone in January hit its highest since the launch of the currency area but a rise in inflation underlined concerns over oil prices that is likely to prevent swift further moves by the European Central Bank to help growth.

As the 17-nation currency area heads into its second recession in three years, relief that the euro zone has put the worst of its debt crisis behind it is being tainted by rising world crude prices and only mildly improving business morale.

Unemployment in the euro zone rose to 10.7 percent in January, while inflation, while down from last year's peak, rose slightly to 2.7 percent in February, the EU's statistics office Eurostat said.

"There's a huge divergence between the feel-good factor in the stock market and what's happening in the real economy," said Steen Jakobsen, chief economist at Saxo Bank.

"For all the money the European Central Bank is printing, there isn't yet a big boost for companies in terms of credit," he said, referring to this week's offer of 530 billion euros in cheap three-year loans to banks.

The European Commission expects the euro zone's economic output to shrink 0.3 percent in 2012, and data released separately on Thursday showed that the manufacturing sector contracted for the seventh straight month in February.

New orders continue to fall and backlogs of work dry up, even in the region's healthiest economy Germany.

The euro zone's economic slump has helped bring rises of prices of goods, fuel and food down for consumers from last year's peak of 3 percent, but oil costs hit record highs in euro terms last month overturning the overall downward trend.   Continued...

People wait for a government employment office to open in Barcelona February 2, 2012. REUTERS/Albert Gea