LONDON (AP) — The sharp fall in the euro over the past year appears to be paying dividends by helping the eurozone deal with one of its major economic problems — unemployment.
A closely-watched survey Thursday found employers in the 19-country single currency zone hiring staff in May at the fastest rate in four years and credited the improving jobs outlook on the fall in the euro. Though it’s recovered somewhat in the past couple of weeks to trade around the $1.12 mark, the euro is still sharply lower than a year ago, when it was near $1.40.
The fall in the currency has the potential of boosting exports by making goods and services from the eurozone cheaper in international markets. To cope with the greater demand, employers need staff. For a region that has an unemployment rate of 11.3 percent, or 18.1 million people looking for work, that’s welcome news. Over recent months, unemployment has been falling as the economy has grown stronger, particularly in Spain, which has seen some of the highest unemployment rates — around 25 percent — in the region for years.
Financial information company Markit said the jobs improvement was particularly evident in the manufacturing sector.
Still, Chris Williamson, the firm’s chief economist, warned that hiring may have reached a high point, especially if growth does not pick up. Markit’s monthly purchasing managers’ index — or PMI, a broad gauge of business activity — fell to a 3-month low of 53.4 points in May from 53.9 the previous month. Anything above 50 indicates expansion.
Williamson said new business growth “needs to rebound to convince companies to continue hiring at anything like the rate seen in May” and noted “worrying signs of confidence waning in the service sector compared to the wave of optimism seen earlier in the year.”
Despite the second straight fall in the PMI, Markit reckons the eurozone economy is still expected to expand at a fairly healthy tick of 2 percent this year, which would be the best performance since 2010. As well as benefiting from the lower euro, the region has been helped by the sharp fall in oil prices as well as the European Central Bank’s decision this year to launch a 1.1 trillion euro ($1.2 trillion) bond-buying program, called quantitative easing, that aims to keep borrowing rates down and encourage businesses to invest and consumers to spend.
“At the moment the extent of the slowing is not a major concern, but will no doubt be causing some nail-biting at the ECB as policymakers await signs that quantitative easing is the panacea the region needs to achieve a robust and sustainable recovery,” said Williamson.
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