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More signs of life from Eurozone as lower euro kicks in

Merkel Speaks At German Employers' (BDA) CongressMerkel Speaks At German Employers' (BDA) Congress
Work - we got it. Germany is creating more, and better, jobs as the recovery matures. Photograph by Sean Gallup — Getty Images

The Eurozone’s economy has been doing a fair impression of a corpse for the last six months, but data out Thursday suggest it’s getting to its feet again–even if it’s still walking like a zombie than a real live person.

There was unambiguously good news from Germany, the 18-country currency union’s biggest and most important economy, where the jobless rolls shrunk by a larger-than-expected 14,000 in seasonally-adjusted terms in November. There are now more people at work in Germany than ever before, while the jobless rate, at 6.6% of the workforce, is as low as it has ever been since the country reunified in 1990.

Germany’s labor market has been one bright spot in all the Eurozone gloom of recent years, with constant job creation standing in stark contrast to almost uninterrupted job losses in countries such as France and Italy. While some argue that a large part of that has been down to low-quality, part-time and insecure jobs, analysts say even that criticism no longer stands up.

Economists at Berenberg Bank in London point out that in the nine months to September, ‘core’ employment rose by 417,000, while total employment rose only 350,00, meaning that “short-term precarious positions are being converted into better-paying permanent ones.”

Two closely-watched surveys of German confidence have turned round in the last few days, as exporters look beyond the problems caused by the Ukraine crisis and focus on the big boost to their competitiveness from the euro’s decline against the dollar.

German inflation also behaved in November, with no new signs of deflationary shocks. The overall consumer price index was flat on the month and, at 0.6%, remains too low for comfort for policymakers, but core inflation, excluding fuel and food prices, is now running at over 1%, according to preliminary estimates across the country’s states. Sharp falls in food and energy prices, which depress the overall index, are less worrying for the economy because they leave consumers with more money to spend on non-essentials.

The situation is, however, still strained. In Spain, the inflation rate fell to -0.4%, the sixth straight month of price declines. In Italy, business confidence fell again, despite the effects of the cheaper euro.

But at a broader level, there were signs of the Eurozone healing, albeit extremely slowly: the European Commission’s Economic Sentiment Indicator, a broad measure of business and consumer confidence, edged up in November.

And the European Central Bank, whose vice-president warned Wednesday that it might throw its last remaining taboo to the winds next year and start buying government bonds to support the economy, reported that lending to the private sector rose in October. Although it’s still down in year-on-year terms, the E.C.B. expects lending to pick up, now that banks have this year’s stress-test behind them.