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Eurozone hit by highest unemployment

BRUSSELS, Feb 27 – The battered eurozone economies suffered more bad news on Friday with a quarter of a million jobs lost in January bringing the unemployment rate to 8.2 percent, the highest level in over two years.

The European Union\’s Eurostat data agency also confirmed that the inflation rate in the 16-nation zone recorded its sharpest fall on record in January, from 1.6 percent to just 1.1 percent, well below the European Central Bank\’s comfort zone of close to but less than 2.0 percent.

The official figures bore out a widely-watched EU study released Thursday which showed European consumer and business confidence at record lows as the recession gets longer and deeper.

"Persistent, and faster, rising unemployment will weigh down on eurozone consumer spending, especially as it will be liable to lead to slowing wage growth," warned Howard Archer, chief European economist at IHS Global Insight.

"This will more than counter the boost to purchasing power coming over the coming months from sharply retreating inflation," he added.

The eurozone jobless rate was up from 8.1 percent in December and well above the 7.3 percent recorded in January, 2008, the new figures showed.

Eurostat estimated that 13.036 million people were jobless in the euro area, with the 8.2 percent rate the highest since September 2006.

That meant a loss of 256,000 jobs across the zone.

The January figures marked the 10th consecutive monthly increase in unemployment, the curve shadowing the deepening recession.

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For the 27-nation European Union as a whole the figures were not much better with the unemployment rate rising 0.1 percent to 7.6 percent in January when 386,000 jobs were lost.

The unemployment rates varied widely between nations, with Spain posting a whopping 14.8 percent while in the Netherlands the jobless rate stood at a mere 2.8 percent.

The fall in the eurozone inflation rate brought it to the lowest point since July 1999 and a record fall from the 1.6 percent that Eurostat recorded in December.

After hitting a record high of 4.0 percent last June and July, eurozone inflation has fallen sharply as oil and other commodity prices collapsed in the face of a deep economic downturn. For the EU as a whole inflation fell to 1.7 percent.

"The downturn in the labour market, and indeed the wider economy, points to a further fall in core inflation in the coming months," said Jennifer McKeown, European economist at London-based Capital Economics.

"And with energy inflation set to fall further too, we see the headline rate dipping into negative territory around the middle of this year," she added.

The falling inflation rate has paved the way for a series of interest rate cuts by the European Central Bank, which has slashed its main rate to a record low of 2.0 percent.

The ECB is likely to lower its key interest rate by another half a percentage point at its meeting next month, a member of the bank\’s board suggested on Wednesday.
Archer suggested that won\’t be the end of the line for the rate cuts.

"We expect eurozone interest rates to come down to 1.00 percent in the second quarter and then stay there for the rest of the year," he said.

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The economic crisis has prompted EU leaders to hold an extraordinary summit in Brussels on Sunday amid growing fears in central and eastern European nations that their western EU partners are taking protectionist measures, with the auto industry a particular flashpoint.

The European Bank for Reconstruction and Development, the European Investment Bank and the World Bank pledged Friday to invest 24.5 billion euros to fight the financial crisis in central and eastern Europe.

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